🎙 Long-Term Games

Make it a five-week winning streak for the S&P 500, which hit yet another record high on Friday. The index crossed 5,800 for the first time and set its 45th record of the year after banks kicked off earnings season on a strong note.

“What we’re seeing — and I think you’re seeing it hit pretty hard today, in a good way — is a broadening of the market,” an equity research analyst told CNBC.

— Matthew & Shawn

Here’s today’s rundown:

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

• Earnings in focus: JPMorgan, Wells Fargo, BlackRock

• At last, companies roll back prices

This, and more, in just 5 minutes to read.

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In The News

📝 Earnings Wrap: JPMorgan, Wells Fargo and BlackRock

Another earnings season is here. For both JPMorgan and Wells Fargo, third-quarter profit fell but by less than forecast, so both stocks gained. BlackRock’s assets swelled to a record $11.5 trillion.

Here’s what you need to know.

JPMorgan

The country’s largest bank beat expectations for earnings and raised forecasts for loan earnings this year. “Inflation is slowing, and the U.S. economy remains resilient,” CEO Jamie Dimon said in a press release.

Analysts expect lending profits to fall as interest rates fall because lenders must lower loan interest charges. Yet JPMorgan surprised to the upside.

On the other hand, deposit balances shrank, and some consumers felt pain amid still-high housing costs.  

• “There’s been a tale of two customers,” a bank analyst at S&P told The Wall Street Journal. “Subprime customers have been depleting their balances and haven’t been keeping up with inflation.”

From the CEO’s chair: Dimon also commented on inflation and geopolitical tension, saying, "We have been closely monitoring the geopolitical situation for some time, and recent events show that conditions are treacherous and getting worse.” He said the events could have "far-reaching" effects on the economy. He stressed that "cash is a very valuable asset in a turbulent world.”

• "Additionally, while inflation is slowing and the U.S. economy remains resilient, several critical issues remain, including large fiscal deficits, infrastructure needs, restructuring of trade, and remilitarization of the world," Dimon added.
  

• The bank’s CFO added: "We're not seeing weakening in retail spending…These results are consistent with a soft landing. That’s pretty consistent with this kind of Goldilocks economic situation.”
  

• JPMorgan shares are up ~30% year-to-date and 92% over the past five years. 

Wells Fargo

Wells Fargo also beat expectations, gaining about 6% after better-than-expected profits. Third-quarter adjusted earnings were $1.52 per share, above the $1.28 per share expected. Revenue came in slightly below expectations. 

Investment banking fees at Wells Fargo were up 37% year-over-year to $672 million. “Our earnings profile is very different than it was five years ago as we have been making strategic investments in many of our businesses and de-emphasizing or selling others,” Wells Fargo’s CEO said. The bank is bolstering its investment-banking business, an opportunity “staring us in the face.”

Wells Fargo stock is up ~25% both this year and over the past five years. 

BlackRock

BlackRock benefited from soaring markets and more new assets under management, especially from high-net-worth individuals. Assets under management have grown by $2.4 trillion over the past year alone.

• The asset manager saw $221 billion in third-quarter inflows, a record well above the $160 billion analysts expected. Net income was $1.6 billion, up 1.7% from a year ago.
  

• BlackRock’s Aladdin platform — proprietary software that lets investors manage portfolios — posted $403 million in revenue, slightly below estimates of $407 million.

They said it: "We think the robust flows that BlackRock delivered this quarter should boost investor confidence that the long-awaited great rotation where investors move off the sidelines and start to ‘re-risk’ by investing in equity and fixed income products is beginning to materialize," an Edward Jones analyst wrote in a note to clients.

BlackRock shares are up about 24% this year and 128% over the past five years. 

Said BlackRock’s Larry Fink: “Our relentless focus on clients, growth mindset, and willingness to evolve has generated a compounded annual total return of over 20% for our shareholders since our IPO 25 years ago, well in excess of broader markets.”

Read more

More Headlines

🤖 Tesla shares drop 8% after Cybercab robotaxi reveal ‘underwhelmed’ investors

🏦 Berkshire slashes Bank of America stake to under 10%, no longer required to disclose frequently

💻 AMD launches AI chip to rival Nvidia’s Blackwell

😬 TD Bank hit with record $3 billion fine over drug cartel money laundering

📉 U.S. inflation reaches lowest point in 3 years, though some price pressures remain

💲 Some Companies Roll Back Prices After Years of Increases

Are prices finally coming down? It’s happening, at least somewhere. 

As consumer spending slows, businesses are turning to discounts to attract customers. The shift comes after years of price increases driven by rising costs and consumer demand.

IKEA reduced global product prices by 10% this fiscal year, the largest drop in company history. Nike's revenue fell 10% in the latest quarter, with profits down 28%, partly due to increased promotions and sales. As Nike’s CFO said recently: “The outlook for the balance of the year will require us to be more promotional.”

• U.S. inflation eased to a three-year low in September (though core inflation remained at 3.3%.)
  

• Domino's Pizza raised prices by 1.6% in the most recent quarter but now offers more promotions.
  

• Chains such as McDonald's and Olive Garden are highlighting their value menus and other deals to boost traffic.

Why it matters:

Price reductions aren’t limited to a single market. IKEA's CEO knows that inflation has affected shoppers globally and, in many cases, still affects families, particularly in the lower and middle-income brackets, with increased housing, food, and energy costs.

The trend reflects an ever-changing consumer landscape. Consumers still face high prices for necessities like shelter and groceries. As a result, they’re more selective on non-essential items, so companies are adapting with lower prices and more promotions. They hope that will stimulate demand and allow them to keep market share. 

IKEA’s CEO told The Wall Street Journal that inflation hit shoppers globally and “everyone paid more for their housing, food, and energy.” 

• “Many people have to spend more money on other things, so we have to help them with as low prices as we possibly can,” he said.
  

• The Domino’s CEO predicts more competition on price this year and into 2025. “We’re in the pizza wars right now,” he said. 

Long-term game: While the price cuts may lead to short-term sales declines, as seen with IKEA's 5% drop, they represent a long-term strategy to maintain market share and customer loyalty. IKEA's plans to open 58 new locations in 2025 signal confidence in a market recovery and demonstrate a commitment to physical retail alongside growing online sales.

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Quick Poll

On Wednesday, we asked: What percentage of your equity portfolio includes Chinese stocks?

— More than half of investors who responded don’t own any Chinese stocks, though about one-quarter have about 1-5% of their equity portfolio in them.

— One investor in Chinese stocks said, “$BABA and $JD got very cheap. High risk, high reward investment.” Another said they now own one Chinese stock: Futu Holdings.

— As for why investors said they’re staying away from Chinese equities? “Within days Russian stocks were worthless due to the sanctions. I fear the same with Chinese stocks if they would attack Taiwan. This political risk makes the country uninvestable for me.” Another wrote, “Not a big fan of government interference. Adds a lot of uncertainty.”

See you next time!

That's it for today on We Study Markets!

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