Dow tumbled 475, decliners over advancers a hefty 6-1 & NAZ pulled back 267. The MLP index was off 3+ to the 377s & the REIT index fell 4+ to the 364s. Junk bond funds remained out of favor & Treasuries saw buying which lowered yields a little from their high levels. Oil was modestly higher in the 85s & gold ended down 19 to 2353 after an unusually wild day of trading (more below).
AMJ (Alerian MLP Index tracking fund)
Citigroup (C) posted first-qtr revenue that topped estimates, helped by
better-than-expected results in the bank's investment banking &
trading operations. EPS fell to $1.58 a
share, on higher expenses & credit costs. Adjusting for the impact of
FDIC charges as well as restructuring and other costs, EPS was $1.86. Revenue slipped 2% to $21.1B, mostly driven by the impact of selling an overseas business in the year-earlier period. Investment banking revenue jumped 35% to $903M,
driven by rising debt & equity issuance, topping the $805M estimate. Fixed income trading revenue fell 10% to
$4.2B, edging out the $4.14B estimate & equities
revenue rose 5% to $1.2B, topping the $1.12B estimate. The
bank also posted an 8% gain to $4.8B in revenue in its Services
division, which includes businesses that cater to the banking needs of
global corps, thanks to rising deposits & fees. CEO Jane Fraser previously said that her sweeping corp overhaul would be complete by Mar, & that the firm would give an update to severance expenses along with first-qtr results. “Last
month marked the end to the organizational simplification we announced
in September,” Fraser said. “The result is a
cleaner, simpler management structure that fully aligns to and
facilitates our strategy.” Last year, Fraser announced plans to simplify
the management structure & reduce costs at the 3rd-biggest US
bank by assets. The bank today reiterated its medium term targets
for returns hitting at least 11% & generating at least $80B in
revenue this year. The stock fell 90¢.
Wells Fargo (WFC) reported a 7% decline in first-qtr profit as high funding costs & lower loan balances took a bite out of net interest income. The bank
reported revenue of $20.8B, up slightly from a year earlier &
ahead of expectations. Net income came in at $4.62B, while diluted EPS were $1.20, results that were down from a year ago
but well ahead of expectations. CEO Charlie Scharf said that investments across the business contributed to higher revenue & that "an increase in non-interest income more than offset an
expected decline in net interest income." Net interest income—which measures the profitability of lending versus
the amount paid out to depositors & account holders—fell 8% from last year to $12.2B, which was slightly below
the estimate. The bank attributed the decline to the
impact that high interest rates are having on funding costs, customers
shifting to higher-yielding products & lower loan balances. WFC maintained its projection for net interest income to fall
7%-9% this year from the $52.4B it generated in 2023. In Feb,
regulators ended a 2016 consent order against the bank that imposed
restrictions on its size & required WFC to overhaul its
process around how it sold financial products to its clients. "The
closure of this order is an important step forward and is confirmation
that we operate much differently today around sales practices," Scharf
said. "The remaining risk and control work
continues to be our top priority and we will not be satisfied until all
work is complete.” The stock fell 26¢.
Wells Fargo Reports Lower Q1 Earnings as Net Iterest Income Falls
Kansas City Fed pres Jeff Schmid said he would prefer to hold interest rates steady & not cut rates until there is "convincing" evidence inflation is dropping. He cited the resilience of the US economy & inflation running above the Fed's 2% target as reasons for his cautious stance. Inflation has surprised to the upside since the beginning of the year & has run at roughly 4% since the first qtr. "Rather than preemptively adjust the policy rate, I would prefer to be patient and wait for clear and convincing evidence that inflation is on track to hit our 2% target before adjusting the stance of policy," Schmid added. His comments come as investors have scaled back bets on the number & timing of interest rate cuts for 2024 following another hotter-than-expected inflation reading this week. The Consumer Price Index (CPI) rose 3.5% over the prior year in Mar, an acceleration from Feb's 3.2% annual gain in prices & more than expected. The year-over-year change in core CPI, which excludes volatile food & energy prices, was 3.8%, the same level as it was in Feb but a 10th of a percent higher than expected. When it comes to inflation, Schmid says he is watching whether strength in the job market is pushing up prices of services via higher wages & whether more people join the job market. Schmid noted the demand for workers continues to be strong, evidenced by robust hiring & elevated wage growth. While wage growth has moderated, it remains elevated compared with earlier periods & likely is pushing up services prices. Schmid is also watching whether new supply chain challenges appear, which could also push up inflation. While Schmid appears content to hold rates steady, other members of the Fed signaled this week they still believe inflation is on course to drop as the year goes on & that it will be appropriate to begin cutting rates later this year.
Fed's Schmid wants to hold rates steady
Gold moved back under $2400 after earlier rising above the mark for the first time, supported by worries Iran is readying an attack on Israel & falling treasury yields. Gold for Jun was last seen down $3 to $2369 per ounce after earlier touching $2448. The rise comes on worries Iran is ready to retaliate against an Israeli attack on its Syrian embassy this month that killed senior members of the country's military with missile or drone attacks on targets in Israel, raising fears of a wider Middle East war. News reported early today said the US issued a warning for travel to Israel, fearing a large-scale attack on the country is near. The price of the metal has gained 9.5% over the past month rising to a series of fresh records on geopolitical worries, even as expectations the Federal Reserve will soon cut interest rate fade. Gold may still be benefiting from some risk off moves as equities suffered & central bank may buying, physical demand & geopolitical risks are playing a role in the short term. The $ was higher, with the ICE dollar index last seen up 0.69 points to 105.97. Treasury yields fell, with the 2-year note last seen paying 4.877%, down 9.7 basis points, while the yield on the 10-year note was down 10.2 basis points to 4.493%.
Gold Retreats, Falls Back Below US$2,400 Despite Heightened Geopolitical Risk and a Drop in Treasury Yields
West Texas Intermediate (WTI) crude oil rose, supported by fears of a widening Middle East war as Iran is said to be readying a retaliatory attack on Israel even & the Intl Energy Agency lowered its demand forecast for this year. WTI crude oil for May closed up 64¢ to settle at $85.66 per barrel, while Jun Brent crude, the global benchmark, was last seen up 94¢ to $90.68. The rise comes on worries Iran is ready to retaliate against an Israeli attack on its Syrian embassy this month that killed senior members of the country's military with missile or drone attacks on targets in Israel, raising fears of a wider Middle East war that would threaten oil supply from the Persian Gulf region.
WTI Crude Oil Rises on Fears of a Widening Mideast War While the IEA Lowers its Demand Forecast
This has been a very dreary week for the stock market. Dow finished down over 900 for the week on unsatisfying inflation followed by unimpressive bank earnings. Of course the stock market was heavily overbought, so some selling should have been expected. Next week will bring earnings from big corps which will drive the stock market. 38904 37983 -1010Dow Jones Industrials
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