🎙️ Banking Drama Is Back

[5 minutes to read] Plus: Data revisions hinder the Fed

By Matthew Gutierrez and Shawn O’Malley

🚨 This is not a drill: Three of the Magnificent 7 reported earnings Thursday afternoon, leaving markets’ fate up in the air.

The outlook? Investors saw their shadow, meaning six more weeks of bull market ahead.

Kidding aside, with its nearly $3 trillion market cap, investors paid particularly close attention to Apple’s earnings today.

While the company was coming off four straight quarters of annual revenue declines, Apple reversed that trend, growing sales 2%.

Meta also reported earnings, surging 12% in after-hours trading after beating expectations and announcing the company’s first-ever quarterly dividend payment of $0.50 per share.

Amazon’s stock moved higher, too, climbing 5% after reporting a 14% jump in revenue.

Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

  • Regional banking woes resurface

  • Why the U.S. might no longer be spoiled with cheap oil

  • The Fed is fed up with data revisions

All this, and more, in just 5 minutes to read.


What’s the estimated cost for Apple's new Vision Pro headsets? (The answer is at the bottom of this newsletter!)

Chart of the Day

In The News

👀 Regional Banking Troubles Are Back

Nearly a year out from 2023’s panic in regional banks, marked by the collapse of Silicon Valley Bank (SVB) and First Republic, problems at not-too-big-to-fail banks are rearing their head again.

New York Community Bancorp’s stock plunged 38% on Wednesday after slashing its dividend to stockpile cash. Consequently, the KBW Regional Banking Index, which became widely followed during last year’s banking panic, had its worst day since SVB’s implosion.

  • Adding to investors’ unease was Aozora Bank. While based in Tokyo, the bank’s stock plunged over 20% on Wednesday, too, following warnings about its investments in U.S. commercial real estate.

  • Meanwhile, Deutsche Bank quadrupled its provisions for losses on U.S. real estate to $133 million.

It’s a reminder that commercial real estate has yet to fully bounce back from a pandemic-era downturn, and banks worldwide — financiers of many such buildings — are feeling the pain.

  • Billionaire investor Barry Sternlicht didn’t help with the market’s nerves, either, predicting office properties may lose over $1 trillion in value due to remote work trends.

Why it matters:

At New York Community Bancorp (NYCB), beyond the dividend cut, investors punished the stock on reports that Moody’s is considering cutting the bank’s credit rating to “junk.”

  • Given that a bank’s whole business is built on providing credit, a bank with a poor credit rating of its own doesn’t exactly inspire confidence. Kinda like your neighbor on his third marriage with no shortage of relationship advice.

Mounting uncertainty: We shouldn’t just pick on NYCB, though. Bloomberg reports that banks face about $560 billion in commercial real estate-related debts coming due by the end of next year, and there’s a lot of uncertainty over how many property borrowers will default on those payments.

  • While bigger banks are less exposed, commercial real estate loans comprise around 28.7% of smaller banks’ assets, according to JPMorgan.

  • Still, it’s not all doom and gloom. The regional bank, Fifth Third Bancorp, recorded zero net write-offs in its commercial real estate dealings in 2023.

  • But a sudden spike in defaults or property value write-downs is all it takes to cause serious trouble for some banks, which is essentially what happened to NYCB.


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The U.S. Is Spoiled By Cheap Oil, But That Could Change

cat no GIF by Looney Tunes

Gif by looneytunes on Giphy

Sure, prices at the pump sometimes surge, but Americans are pretty spoiled. (OK, maybe not our friends in California). 

But U.S. drivers — especially in the Midwest — might soon be paying more at the pump. Cheap Canadian oil will soon have new buyers through a long-delayed 715-mile pipeline expansion to the Pacific Ocean. 

An energy powerhouse: For years, Canadians have sent their crude oil pipelines through the Midwest to the Gulf Coast, driving down the prices that U.S. refiners and drivers pay. But those days might be over because Canadian oil companies will soon ship crude via the pipeline expansion to the Pacific, allowing traders to sell more oil to the U.S. West Coast and Asian economies. 

  • The Trans Mountain expansion will nearly triple the capacity of an existing pipeline to 890,000 barrels per day.

  • Canadian firms should have more pricing power, boosting Canada’s position as a global energy powerhouse.

  • “This is a big deal that’s been 10 years in coming,” remarked an S&P Global Commodity Insights analyst. “It does allow Canada, for the first time in its history, as the fourth-largest oil producer in the world, direct access to international markets.”

Americans have helped Canada become an export juggernaut, with imports from Canada surpassing 4 million barrels a day at times in 2023, per U.S. officials. That’s nearly two-thirds of Canada’s total shipments. 

  • For the most part, Americans have gotten a bargain because there’s been relatively low transport costs and a limited pool of buyers.

Why it matters:

Kinder Morgan proposed an expanded pipeline over a decade ago and was willing to drop $4 billion. However, regulatory delays and environmentalist opposition drove the Houston-based company to abandon the project, selling it to the Canadian government for $3.5 billion in 2018.

  • Canadian Prime Minister Justin Trudeau called the expansion “vital” to the country’s interests. He wasn’t mincing words: Government spending on the project has totaled about $25 billion.

  • But the country knows the project could bolster its oil industry, which is especially attractive because Alberta’s oil sands are usually less costly to refine. 

The bottom line: The project cleared its last major regulatory hurdle last month. Now, it comes down to last-minute construction challenges before launch. 

  • As Canada grows its thriving industry, Midwest cities like Chicago, Minneapolis, and Detroit will likely pay at least some of the price.

  • “The Midwest is held captive by Canadian crude oil,” noted an energy analyst. 

More Headlines

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🚲 Peloton posts mixed holiday results, dismal quarterly guidance

📰 More media malaise as digital news outlet shutters after less than a year

💰 The EU approves $54 billion in new aid for Ukraine

🚘 Volvo jumps 26% on higher sales and plans to stop funding Polestar

😵‍💫 Data Revisions Complicate the Fed’s Job

Unimpressed Sea GIF by SpongeBob SquarePants

Gif by spongebob on Giphy

Your teachers were right; revising your work is important. Usually, the more revisions, the better the final product. The Fed, however, is fed up with data revisions.

Fed officials tout their “data-dependent approach” to making decisions about interest rates, but that’s easier said than done when the data informing their outlook is routinely revised. And not small revisions, either — big ones.

  • As Fed Governor Christopher Wallace puts it, “We have to make decisions in real-time. Whatever data is released, that’s the data I have to use. The problem with data is it gets revised.”

For example: Look at 2021’s employment statistics. The Fed grimaced while watching inflation accelerate, yet the economy looked fragile, and premature rate hikes could unwind progress made in stimulating the economy amid Covid disruptions.

  • But it wasn’t weak at all. While initial reports in August 2021 suggested the U.S. economy had added a modest 235,000 jobs, two months later, that estimate was more than doubled to 483,000.

  • By 2022, it was clear the economy had actually added some 663,000 jobs in mid-2021 — almost three times the original report.

In hindsight, the economy was strong, and officials should’ve reacted sooner to inflation. But at the time, they were working with very different data, pushing them to delay their inflation fight to the detriment of Americans’ purchasing power.

Why it matters:

This wasn’t a one-off issue. The same thing happened in the other direction last year. In 9 months in 2023, significant revisions were made to jobs data, suggesting the economy was much weaker than initially thought, and we don’t even have revisions for November and December yet.

  • Said another Fed official, “The frequency and extent of data revisions make the task of predicting how the economy will evolve even more challenging.”

Data trouble: It’s also not just jobs data. GDP data is, on average, revised 0.6 percentage points higher or lower by the third revision. It’s a similar issue with inflation data as measured by the Consumer Price Index (CPI).

  • Waller worries that 2023 CPI revisions could change “the picture on inflation,” hence the Fed’s hesitation to move forward with rate cuts as outlined in Wednesday’s meeting.

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