The Banks Made Billions, So Why Weren’t Investors Impressed? CPI at 8:30! – Try the Pork Chops.

Things You Need to Know

• The big banks did not disappoint – yet investors were not impressed.
• Today it’s BAC and MS.
• Oil surges as the Houthi’s threaten to ‘blow it all’ up.
• Bonds eased – just a bit…let’s see what happens after the CPI at 8:30.
• Try the Pork Chops

The Banks Made Billions — So Why Isn’t Wall Street Celebrating?

Stocks ended the day modestly lower yesterday as investors tried to make sense of the opening round of big bank earnings, another round of selling in semiconductors and a bond market that continues to send mixed signals. And while the headline indexes suggested it was a quiet day, there was plenty going on under the sheets.

The Dow lost 0.4%, the S&P ended the day flat, the Nasdaq lost 0.2%, the Russell lost 0.4%, the Transports added 0.25%, the Equal Weight S&P rose by 0.1% while the Mag 7 added 0.6%.

Now, let’s take a peek –

Semiconductors came under pressure – the SOXX lost 0.2%, Industrials – XLI lost ground down 0.3%, Financials lost 0.4% (we’ll discuss below), Healthcare lost 1.3% (mostly JNJ – 5.7%), Airlines down 0.8%, Disruptive Tech lost 1%, Metals & Miners down 1%, Aerospace & Defense gave up 1.2%, Big Pharma lost 1.3%, Biotech got slammed – falling 3% while Memory names got smoked – losing 3.5%.

On the other side – Energy – XLE gained 1.8% while the Communications sector – XLC rose by 0.75% – this after getting slammed on Friday – (see my note), Utilities + 0.6%, Basic Materials + 0.6% while Home Builders added 0.6%.

Now let’s discuss the big banks – because they took center stage and delivered some impressive profits — We heard from 4 of the 6 ‘families’ – JPM, GS, C and WFC — collectively they earned about $32 billion in quarterly profits suggesting that the banking business is alive and well, yet investors weren’t exactly tripping over each other to buy the stocks.

The messages were generally encouraging. Corporate America and consumers continue to borrow. Net interest income remains healthy, and trading and investment banking revenues continue to support profitability. All of that suggests that despite the uncertainty surrounding the economy, banking & business activity remains resilient.

So, you might expect investors to celebrate, right? Well, not so fast! Because despite all those billions in profits, every one of the four big banks that reported yesterday ended the day LOWER!

C got slammed — losing 5.6%, WFC fell 3.1%, JPM gave back nearly 1% and even Goldman Sachs, which delivered a significant earnings beat, ended the day slightly lower.

Now think about that for a minute. The big banks have already been under significant pressure since the drawdown began during the summer. JPM lost 11%, GS lost 24%, C -16%, WFC lost 13% and that tells you that the market (investors) have already been repricing these names ahead of earnings, reflecting concerns about higher interest rates, stubborn inflation, credit quality and the outlook for the economy, yet investors STILL SOLD the stocks.

Why? Because Wall Street isn’t just looking at what these banks earned last quarter. It’s looking at what comes next and it is those higher borrowing costs, stubborn inflation and signs of slowing activity in parts of the bond-trading and investment-banking businesses are all raising questions about the sustainability of those profits.

And that’s the distinction — the earnings may be good, but apparently they weren’t good enough to convince investors that the worst has been priced in. They wanted confidence that earnings can keep growing despite higher rates and persistent inflation. Yesterday’s selling suggests the reports weren’t convincing.

Recall we saw that same reaction in Samsung last week – they crushed it, but they didn’t’ crush it enough! That stock is now down 17% since they announced (5 days ago), and it is sitting right on its long term trendline…and if that fails – the chart suggests it could drop another 11% ish…

And remember, the big banks are a window into the broader economy. They tell us how consumers are spending, whether businesses are borrowing, whether credit quality is deteriorating and whether the C-suite is confident enough to invest, expand and take risks.

Semiconductors came under pressure for the fifth consecutive session, with Micron and Applied Materials among the casualties as investors continued questioning valuations, the sustainability of AI spending and the potential threat from Chinese competition. Both those names are lower again in the pre-mkt….

Now, before you light your hair on fire understand this- the semiconductor index has now lost more than 8% over the past five sessions yet remains up more than 80% year to date. 80%. So, ask yourself – is this the beginning of something more serious, or is it simply investors taking profits in a sector that has delivered extraordinary gains?

Meanwhile, Apple managed to hit another intraday record high ($348.15), leaving it up 25% ytd – reminding us that investors aren’t abandoning technology altogether. They’re just becoming more selective about where they want to put their money.

And that brings us to another point we’ve been discussing for weeks. While S&P is up 14% this year, the median stock in the index is up less than 5%, and more than 200 S&P companies are actually down for the year.

And that’s precisely why we continue to watch the Equal Weight S&P, market breadth and the performance of individual sectors. Because the headline index doesn’t always tell the whole story.

Now, what about bonds? They provided a little relief. The TLT gained 0.4% while the TLH gained 0.35%. The 10-year bond ended the day yielding 5.20% while the 30-year was at 5.55%. This morning – yields are a bit lower…the 10 yr is at 5.19%, and the 30 yr is at 5.54%.

Yes, that’s encouraging. But let’s not get confused…. 5.2% 10 yr yields continue to affect everything from mortgages and commercial real estate to corporate financing and consumer borrowing. And remember – higher interest rates can initially benefit bank lending margins, but they can also increase deposit costs, discourage borrowing and eventually weaken credit quality. So, there’s a balancing act going on, and the banks understand that.

Oil initially traded lower before buyers stepped in, reversing the losses and sending crude up 40 cents to $94.14. So, what happened? Well, the Middle East remains a powder keg. Renewed attacks on Saudi Arabia by the Houthi’s, threats to tankers moving through the Strait of Hormuz – by the Houthi’s and the growing concerns about the security of global energy supplies continue to keep a geopolitical risk premium in oil prices.

And while the prospect of additional Russian diesel supplies gave traders something to celebrate, the market wasn’t buying it – diesel futures surged nearly 5% as supplies remain tight heading into winter.

Meanwhile, OPEC reported that production increased by roughly 900k barrels a day in September – good, right? Not so fast…. producing the oil is one thing, getting it safely to market is something entirely different.

And with energy costs high, they remain a very real inflationary threat. This morning – WTI is trading up 50 cts at $94.65.

Which brings us right back to today – Wednesday.

We’re getting another round of big bank earnings, with BAC and MS reporting, giving us yet another look at net interest income, credit quality, trading revenues and the outlook for corporate America.

But the BIG event is the September CPI report. A hotter-than-expected CPI report will send Treasury yields higher, putting more pressure on stocks – especially technology – and it will raise concerns that the Fed may have consider additional rate hikes.

On the other hand, a cooler-than-expected report could give bonds some breathing room, take some pressure off yields and provide stocks with a reason to rally.

But here’s the thing — it’s not just about the headline number. We need to pay attention to CORE CPI, which strips out food and energy, because that will tell us whether underlying inflation pressures are actually easing or whether they remain embedded in the economy.

Top line CPI is expected to be +0.6% m/m and +3.6% y/y – both higher vs. last month. Core CPI is expected to be + 0.2% m/m and + 2.5% y/y – essentially unchanged over last month.

And remember — with oil prices still elevated, investors are going to be especially sensitive to what the data suggest about the path of inflation in the months ahead and that, my friends, is where the rubber meets the road.

European markets are higher—up about 0.5% across the board. ASML beat expectations, sending the stock up nearly 2%. Management raised its 2026 sales forecast to €44–€45 billion and reminded us that they cannot meet demand thru 2028….and all that means is that the AI infrastructure buildout still has plenty of room to go.

US futures are UP as we await the latest CPI report…Dow futures are ahead by 236 pts, the S&P’s up 18, the Nasdaq up 13 and the Russell up 10. But remember—the inflation report arrives before the opening bell, so this could all change quickly.

The S&P closed at 7,805—down just 2 pts—with trendline support now at 7,710 and resistance near 7,815. Futures suggest we could kiss resistance on the opening, provided CPI cooperates. A softer-than-expected report could push Treasury yields lower and give buyers a reason to push stocks higher. A sustained break and close above 7,815 would put 8,000 on the radar…. A hotter report will reverse the narrative and put the support trendline on the radar. A breach of support will put S&P 7600 in play.

And all this means is that make sure you are well diversified, being a bit more defensive with new money makes sense. You can do that by allocating new money to short term treasuries or you can do it by allocating new money to defensive sectors – think consumer staples, healthcare, utilities and the dividend aristocrats.

If you’d like to discuss your goals, evaluate the risk in your portfolio or simply get a second opinion, give me a call at 561-931-0190 or better yet – click on this link to connect. https://slatestone.com/contact-us/

I’m always happy to provide a complimentary portfolio review and risk assessment.

Take good care,

Kp

[email protected]

Source: Bloomberg, CNBC, Reuters, Wall Street Journal

This media segment contains general market commentary based on publicly available information and is provided for informational and educational purposes only. It is not intended as, and should not be construed as, investment advice or a recommendation to buy or sell any security.

Any references to specific securities, asset classes, market levels, technical indicators, or sectors are provided solely for illustrative purposes to support market commentary. Such references do not represent recommendations and should not be interpreted as reflecting the performance of any SlateStone Wealth, LLC investment strategy, portfolio, or client account. Past performance of any referenced security or index is not indicative of future results.

Forward-looking statements, including projections of market levels, technical support or resistance ranges, economic outcomes, or potential market reactions, are based on current opinions and assumptions and are subject to change without notice. Actual results may differ materially. Investing involves risk, including possible loss of principal.

Discussion of market opportunities, valuation compression, or sector rotation does not imply that any particular investment is suitable for any specific investor. Investment decisions should be made based on an individual’s objectives, financial situation, risk tolerance, and time horizon.

The firm and its clients may hold positions in securities discussed, and such holdings may change at any time without notice.

Advisory services are offered through SlateStone Wealth, LLC, a registered investment adviser. Registration with the U.S. Securities and Exchange Commission does not imply a certain level of skill or training. An advisory relationship is established only pursuant to a written agreement. For additional information regarding our services, fees, and conflicts of interest, please review our Form ADV Part 2A, available at www.adviserinfo.sec.gov or upon request.

If you contact our firm to request a consultation, any discussion would be preliminary in nature and would not constitute personalized investment advice unless and until an advisory agreement is executed.