It's Earnings Szn

In this issue of the peel:

• Like any good earnings szn, kicking things off this time around were none other than some of the largest U.S. banks.
• Progressive and UnitedHealth had a ripe day, whereas Boeing and Microsoft suffered a share price decline.
• BlackRock’s average assets under management for the quarter sat just under $9.4tn, growing 11% compared to last year.

Market Snapshot

Happy Monday, apes.

Hope your TV is still working, even if you’re a Giants fan. I feel your pain, but we can all rejoice in the fact that at least earnings szn is finally and officially BACK.

And on the first day of this glorious earnings szn, stocks were straight up not having a good time. Equity markets mostly sold off, except for the Dow with its price-weighted basket of 30 stocks that no one should care about. The elder index rose 0.12% while all the others were dumped, like Boeing’s 737-MAXs (more below). Large-cap tech names had the toughest time, dragging the Nasdaq to a 1.23% down day and making it the worst performer.

Treasuries, on the other hand, moved mostly in unison, with longer-dated maturities watching yields fall markedly while shorter-dated bonds saw less of a move. The 10-year moved from ~4.70% to just under 4.62% while the 2-year remained posted at the 5% mark it seems to have fallen in love with.

Let’s get into it.

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Banana Bits

• Sit down, Greta; U.S. oil production hit an all-time high last week as domestic oil production joins earnings szn in being back.
• JPMorgan CEO Jamie Dimon is getting in on the Halloween spirit early with these spooky comments.
• With a giant middle finger to Blockbuster and Redbox, the big red streaming giant plans to open brick-and-mortar stores in 2025.

Macro Monkey Says

Bank Earnings or Earning Bank?

Congratulations, apes—we’ve officially made it to the most wonderful time of year. Not only because of that fall crisp in the air or because flannel szn is officially back, but because it’s earnings szn too.

And like any good earnings szn, kicking things off this time around were none other than some of the largest U.S. banks. In addition to seeing how much these guys fleeced you with overdraft fees and 0.1% deposit rates, bank earnings give us one of the best views possible of the consumer—you know, the consumer that drives ~70% of U.S. GDP.

So, with no further ado, let’s get into it. On Friday, we got earnings data from:

"... bank earnings give us one of the best views possible of the consumer ..."

JPMorgan Chase: CEO Jamie Dimon is one of the most revered men on Wall Street—and he really likes to scare the sh*t out of people. Whether it’s a Halloween prank or a doubling-down on his “brace yourself” comments from last year, the headline of JPMogran’s call was Dimon’s comments that “This may be the most dangerous time the world has seen in decades.”

What a great way to get people excited. But, given the numbers printed by the world’s largest bank, it didn’t take much convincing that things are still going well for them.

Profits boomed 35% from last year, and they delivered an EPS of $4.33/sh ($13.5bn net income), well over estimates. Sales of just under $40bn barely beat expectations, but a win is a win.

Wells Fargo: Thankfully, there was a lot less fear-mongering over at Wells Fargo.

As the 3rd largest consumer bank in the U.S. by deposits, Wells was set to be one of the top beneficiaries of rising rates and a steepening yield curve… and they did. EPS of $1.48/sh ($5.77bn) was up a massive 61% from the last year’s quarter. Not bad, I guess.

Revenue grew ~7% for the same period and beat estimates as well. The only major downside was, like JPMorgan, a more pessimistic outlook for the rest of this and into next year, demonstrated by the more-than-doubling loan loss of up to $850mn for the quarter compared to $399mn last year.

Citigroup: Now, moving over to the smallest of the three, we have Citi. Unlike the two above, Citi is much more exposed to dynamics on Wall Street than on Main Street, hence what we’ll see below…

The firm was able to beat both earnings and revenue estimates, raking in $1.63/sh $20.14bn in revenue. The beat is always nice, but the growth here was far lower, with net income increasing only 2% compared to last year.

Moreover, Citi’s earnings once again confirm that leaning into wealth management and financial planning has been the move for these banks in recent years. Citi’s WM arm grew the most for the period, rising 10% YoY.

"... things are going well for now ..."

From all three banks, the story was fairly similar, and some of our main takeaways include the following:

• Provisions for loan losses are rapidly increasing.
• Higher interest rates are increasing the spread between what the banks earn on loans vs what they pay deposits because f*ck depositors, apparently. That means interest income (the most important line item for banks) has been booming.
• Despite the continued widening of that spread, banks are paying higher deposit rates, with JPMorgan’s interest-bearing deposits earning ~2.5% vs 0.73% last year.
• Credit card spending continued to grow at all three banks, suggesting consumers haven’t yet been spooked by their rates (if they even look at them).
• Mortgage originations have absolutely plummeted thanks to a dogsh*t housing market, falling as much as 70% at Wells and only 9% at JPMorgan.

As you can see, it’s a similar story from all three. Basically, things are going well for now, but given the outsized uncertainty in the macro picture from things like conflict escalations, non-cooperative inflation, rising deficits, and more, the banks are becoming more cautious.

Next week, we get numbers from the likes of Schwab, BofA, Goldman, Morgan Stanley, and all the other companies specializing in hiring pompous ex-lacrosse players. For the investment banks, we can’t wait to see how deal profitability has performed and, most importantly, how levels of depression and anxiety among analysts have changed. Stay tuned.

What's Ripe

Progressive (PGR) ↑ 8.14% ↑

• Flo and the team over at Progressive spent their day watching Warren Buffett—the owner of Geico through Berkshire Hathaway—wish he had a time machine so that Geico was publicly listed yesterday. Unfortunately, all the gains went to Progressive.
• And rightfully so, looking at these quarterly numbers. Profits boomed by an order of magnitude compared to last year, with EPS of $1.89 vastly outpacing the $0.20/sh earned in the same quarter in 2022.
• If we were on a bear hunting trip right now, Flo & Co. would win hands down. Net premiums got traders going as well, gaining 20% from last year and clocking in at ~$15.6bn.

UnitedHealth (UNH) ↑ 2.64% ↑

• Earnings szn is back, and apparently, it was a damn good quarter for insurance companies. Shareholders of healthcare giant UnitedHealth weren’t mad at all.
• Being the 10th largest publicly traded company in the United States certainly has advantages (like the CEO’s bonus), but it also comes with downsides, like less of a move in shares after a damn good quarter. But we have a feeling UNH wasn’t too upset about it on Friday.
• The managed-care behemoth posted EPS of $6.56 on massive top-line sales of $92.4bn… keep in mind that’s just for the quarter, too. Both crushed expectations almost to the degree that UNH crushed the vibe in the sector back in the summer when it warned about rising healthcare costs.
• But, for at least one reason, the future looks bleak. That main reason is none other than the stock Grim Reaper himself—Jim Cramer—uttering the dreaded phrase “UNH is back.” Does that count as assault?

What's Rotten

Boeing (BA) ↓ 3.34% ↓

• As if flying wasn’t a horrendous enough experience for anyone over 5’2, Boeing likes to play games. Apparently, they get a kick out of making us think the plane will also be our coffin.
• On Friday, shares in the aerospace giant tanked as even more problems were uncovered in the company’s way too popular 787-MAX model. Even Boeing’s fuselage supplier, Spirit AeroSystems (SPR, -1.63%), was dragged down as well.
• Basically, certain fasteners on parts of the plane made by both firms “might not conform to specifications.” Embarrassing.
• Next time you’re hopping on a flight, just hope that the plane model begins with “A” because their rival Airbus makes a solid plane.

Microsoft (MSFT) ↓ 1.04% ↓

• Microsoft CEO Satya Nadella wants all the smoke. And in particular, he’s about ready to square up with everyone in DC.
• Yesterday, Microsoft finally completed its super-nice $69bn acquisition of video game publisher Activision Blizzard. It only took 633 days, or about 21 months, for the finalization to go through… but the legal battles still aren’t over, as an appeals court hearing with the FTC remains slated for December.
• At the same time, the behemoth of Bellevue learned earlier this week that they might’ve missed a couple of dollars here and there in their tax filings and payments to the IRS. It's nothing crazy, just about $30 billion f*cking dollars, but I’m sure this “process” will take years to finalize.
• So, it’s the IRS and the FTC vs Satya and $MSFT.

Thought Banana

Earnings Spotlight: BlackRock

You didn’t think we’d forget that the world’s largest asset manager also reported earnings on Friday, did you? The firm’s AUM is officially larger than the Fed’s balance sheet. That’d sure be a tough one to miss, so for the third time today, let’s get into it.

BlackRock’s average assets under management for the quarter sat just under $9.4tn, growing 11% compared to last year, largely on the back of the S&P 500’s ~15% gain over the course of the period.

Earnings managed to grow as well, with per-share income rising to $10.91, beating the living hell out of estimates for $8.34/sh and last year’s $9.55/sh. Unlike the banks discussed above, however, rising rates and interest income aren’t necessarily the most important things for BlackRock. Here, investors focus on AUM, net flows, and fees.

"... investors focus on AUM, net flows, and fees."

As we said above, BlackRock’s AUM is even more wildly, insanely gargantuan than it was last year.

And for those of you out there confused about the all-too-popular online conspiracy theory that companies like this and Vanguard own every large company in the world, that is categorically false. They have to own a certain number of shares for their index funds that are then purchased by investors… so no, BlackRock doesn’t own nearly 10% of Apple, for example.

Anyway, now that that thorn is out of our side, we can focus on things that actually matter and make sense.

Net inflows totaled $3bn for the quarter and brought the annual figure up to $193bn, a sharp drop compared to the flow figures seen in recent years. According to CEO Larry Fink, it has nothing to do with the company itself but the fact that a new competitor has come onto the scene: cash.

Because investors and civilians alike can earn actual returns on cash these days, for the first time in most of our investing lifetimes, there’s less of an urge to park it in an index fund and take that extra degree of risk.

"... Fink and Co. are allegedly on the hunt for some sweet, juicy M&A ..."

The growth, revenue, and earnings largely came from an increase in advisory fees for both retail and institutional clients. Just like with the banks above, in this case, advisors acting like they ever have a clue what to do has been hugely profitable.

Now, Fink and Co. are allegedly on the hunt for some sweet, juicy M&A in a way they haven’t been for “many, many years.” In case anyone can get in touch with them, please let BlackRock know I’m more than willing to engage in an M&A transaction where they acquire my portfolio of student loans. Open to inquires!

The big question: What does the future of BlackRock look like? Is it a buy or a sell? What is BlackRock’s next M&A target going to look like? How will that shape the economy?

Banana Brain Teaser

Yesterday —

All of the odd numbers from 1 to 999 are added together.

What is the total?

Answer

250,000. This is the sum of the sequence 1, 3, 5, 7, …, 997, 999

Notice that 1,000 = 1 + 999 or 3 + 997. Adding subsequent numbers from the front and the back of the sequence leads to 1,000, and by doing this, there are 250 combinations of 1,000.

Today —

A carpenter was in a terrible hurry. He had to work as quickly as possible to cut a very heavy 10-foot plank into ten equal sections. If it takes 1 minute per cut, how long will it take him to get the ten equal pieces?

Shoot us your guesses at [email protected].

Wise Investor Says

“Markets can remain irrational longer than you can remain solvent”—John Maynard Keynes

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team