Markets seesaw after JPMorgan tempers guidance on income

Dow pulled back 92 but well off its midday low on JPM's earnings forecast (see below), decliners modestly ahead of advancers but NAZ rose 141.  The MLP index added 1 to 281 & the REIT index rose 6+ to the 437s as yields declined.  Junk bond funds fluctuated & Treasuries were purchased which lowered yields.  Oil was off a very big 2+ to 66 & gold gained 12 to 2545 (more on both below).

Dow Jones Industrials 

JPMorgan (JPM), a Dow stock, shares fell after the bank's pres told analysts that expectations for net interest income (NII) & expenses in 2025 were too optimistic.  While the bank expects to be in the “ballpark” of the 2024 target for NII of about $91.5B, the current estimate for next year of about $90B “is not very reasonable” because the Federal Reserve will cut interest rates, JPM Pres Daniel Pinto said at a financial conference.  “I think that that number will be lower,” Pinto said.  He declined to give a specific figure.  JPM, the biggest US bank by assets, has been a winner among lenders in recent years, benefiting from better-than-expected growth in NII as the bank gathered more deposits & made more loans than expected.  But skittish investors are now concerned about the outlook for a bellwether banking stock, along with broader concerns about slowing US economic growth.  NII, one of the main ways banks make money, is the difference in the cost of a bank's deposits & what it earns by lending money or investing it in securities.  When interest rates decline, new loans made by the bank & new bonds it purchases will yield less.  Falling rates can help banks in the sense that customers will slow the rotation out of checking accounts & into higher-yielding instruments like CDs or money market funds.  But they also make new assets lower yielding, which complicates the picture.  “Clearly, as rates go lower, you have less pressure on repricing of deposits,” Pinto said.  “But as you know, we are quite asset sensitive.”  When it comes to expenses, the analyst estimate for next year of roughly $94B “is also a bit too optimistic” because of lingering inflation & new investments the firm is making, Pinto said.  “There are a bunch of components that tell us that probably the number on expenses will be a bit higher than what is expected at the moment,” Pinto added.  When it comes to trading, JPM expects 3rd-qtr revenue to be flat to up about 2% from a year ago, while investment banking fees are headed for a 15% jump.  The stock sank 11.22 (5%).

JPMorgan Chase shares drop 7% after bank tempers guidance on interest income and expenses

Europe's top court ruled against Apple (AAPL), a Dow stock, in the tech giant's 10-year court battle over its tax affairs in Ireland.  The case stems back to 2016 when the European Commission ordered Ireland to recover up to €13B ($14.4B) in back taxes from AAPL.  The European Court of Justice’s decision comes hours after the company unveiled new products to revitalize its iPhone, Apple Watch & AirPod lineups.  The Irish gov said that the AAPL case “involved an issue that is now of historical relevance only,” adding that its position has always been that it “does not give preferential tax treatment to any companies or taxpayers.”  AAPL said in a filing that it will incur a 1-time income tax charge of about $10B in its 4th fiscal qtr ending Sep 28, 2024.  The gov noted it will now begin the process of transferring the assets in the escrow fund to Ireland.  “This case has never been about how much tax we pay, but which government we are required to pay it to. We always pay all the taxes we owe wherever we operate and there has never been a special deal,” an AAPL spokesperson said.  “The European Commission is trying to retroactively change the rules and ignore that, as required by international tax law, our income was already subject to taxes in the US.”  The stock fell 16¢.

Apple must pay $14.4 billion in back taxes, EU's top court rules

Pity the poor active trader.  Sep is living up to its reputation as a difficult month.  “Squirrelly” is how 1 trader described the market.  In other words, a tough, choppy market for investors.  The markets opened positive, with a nice lift from Oracle (ORCL), which is keeping the expanding artificial intelligence story going.  The company’s positive comments on AI helped lift the hyperscalers as well.  But that was about it.  None of the other semiconductors got a lift from ORCL.  Everything else in the group is down.  Elsewhere, banks, a former leadership group, have been trending down for the past week, & at midmorning, word on 3rd-qtr guidance from JPM at a Barclays conference, where it said net interest income expectations for 2025 were “too high.”  Stock in the country's largest bank immediately sold off.  That alone is chopping about 100 points off the Dow.   But Goldman Sachs (GS), down about 5%, is also knocking about 160 points off the Dow.  These were 2 major leadership stocks in the S&P 500.  Both were at historic highs going into Sep, not anymore.  Even regional banks are now lower.  The issues facing the market are well known: weak seasonals thru Oct, concerns about a slowing jobs market & valuations that are still on the high side.  Put this all together, & it reinforces the view that there is no reason to stick your neck out.

September is living up to its reputation as a difficult, choppy month

Gold prices held firm above the $2500 level as market participants positioned themselves ahead of US inflation data for further clues on the depth of interest rate cuts by the Federal Reserve next week.  Spot gold rose 0.3% to $2512 per ounce & US gold futures settled 0.4% higher at $2543.  Investors will closely scan thru US Consumer Price Index (CPI) data tomorrow & the Producer Price Index reading on Thurs.  The CPI for Aug is expected to have risen by 0.2% month-over-month, unchanged from the previous month.  Markets are currently pricing in a 67% chance of a 25-basis-point US rate cut at the Fed's Sep 17-18 meeting & a 33% chance of a 50-bps cut, the CME FedWatch tool showed.

Gold holds firm above $2,500 level as US inflation data looms

West Texas Intermediate (WTI) crude oil fell to the lowest in more than 3 years as the market again focused on demand concerns as China's economy weakens, while 2 forecasting agencies cut their 2024 demand forecasts, even as Tropical Storm Francine forces the closure of some Gulf of Mexico platforms, cutting into supply.  WTI crude oil for Oct closed down $2.96 to settle at $65.75 per barrel, the lowest since Aug 2021 & Nov Brent crude, the global benchmark, was last seen down $2.85 to $68.99.  Oil moved higher yesterday following 5 losing sessions that pushed prices down by 11%.  However the release of China's Aug economic data, showing producer-price disinflation as its economy slows, countered any lingering optimism.

WTI Crude Oil Falls to a Three-Year Low With the Focus on Demand as China's Economy Slows

Stocks traded mixed in a rollercoaster session as investors geared up for a looming consumer inflation report seen as crucial to determining the size of an interest-rate next week.  In the meantime, safe haven gold remains in demand & oil is at a more than 3 year low.  Sep has a well deserved reputation for being a tough time in the stock market.