🎙️ Money Machines

The inflation battle might be just about over.

The Consumer Price Index (CPI) showed another slowdown in June, with the annual inflation rate dropping to 3% from 3.3% in May. It’s more welcome news for Federal Reserve officials and evidence that their efforts to control rapid price increases continue to yield results.

Core CPI, which excludes volatile food and energy prices, also showed signs of moderation, rising by just 0.1% from May — its slowest pace since August 2021.

— Matthew & Shawn

Here’s today’s rundown:

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

• Big banks kick off earnings season

• Big tech and a great rotation?

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

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In The News

🏦 Big Banks Still Feeling Pressure From Higher Rates

Earnings season is back with big bank earnings. Here’s what you need to know:

JPMorgan Chase: Reported a 25% increase in quarterly profit, reaching $18.15 billion. But the surge was largely attributed to a $7.9 billion gain from exchanging its Visa shares. Excluding this one-time gain and other items, the bank's core profit actually declined compared to the previous year. 

Wells Fargo: It was a challenging quarter, and its shares dropped nearly 7%. The bank reported a minor decrease in profit and revenue and notably reduced its forecast for net interest income.

Citigroup: Delivered more positive results. Quarterly profit rose 10% to $3.2 billion. The bank saw revenue growth across all five of its business units. 

What it means: The major U.S. banks reported mixed results, mostly due to ongoing economic pressures, changing consumer behavior, and relatively high interest rates. 

• Wells Fargo posted a decrease in profit and revenue, reporting a decline in net interest income and average loans — indicating reduced borrowing activity due to high interest rates.
  

• Citigroup, however, posted a 10% increase in quarterly profit to $3.22 billion, with revenue rising 4% to $20.14 billion. The improvement was partly attributed to the bank's ongoing restructuring efforts and cost-cutting measures.

Consumer weakness: All three banks showed signs of consumer weakness, and JPMorgan and Wells Fargo increased their provisions for potential loan losses, which suggests growing concerns about consumer credit quality and the potential for increased delinquencies.

Why it matters: 

Bloomberg reported Friday that more businesses are doing deals again after a “long lull, allowing investment bankers to contribute a larger share of their banks’ bottom lines despite the elevated cost of borrowing, lingering uncertainty posed by the US election and global geopolitical issues.”

Inflationary forces: Inflation has come down a long way over the past 24 months, but we might not be exactly out of the woods just yet. 

As JPMorgan CEO Jamie Dimon said, “There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade, and remilitarization of the world. Therefore, inflation and interest rates may stay higher than the market expects.”

Basically, Dimon is calling attention to the growing government spending — when governments like the U.S. run large deficits; they often resort to monetary financing or borrowing, which can increase the money supply and potentially drive up prices.

• There are also infrastructure needs: Substantial investments in infrastructure projects, potentially pushing prices upward, and shifts in supply chains or new trade agreements, which can affect the prices of goods and services.
  

• Increased military spending and geopolitical tensions can drive higher government expenditures and potential disruptions in global trade, both of which can contribute to inflationary pressures.

Read more

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✈️ Delta says the Olympics will cost it $100 million as travelers skip Paris

📱 Big Short Investor Doubles Down on Big Tech

A Big Short investor is the latest Big Tech bull. Steve Eisman, a senior portfolio manager at Neuberger Berman Group, just shared his bullish outlook on U.S. mega-cap technology stocks, saying investors “have to own the big, large-cap tech stocks.”

Here are the key points from his analysis in an interview with Bloomberg Television:

• Long-term play: Eisman says that the strength of U.S. mega-cap tech shares will "last for years," driven by the increasing accessibility of artificial intelligence (AI) through consumer electronics. He noted that these “Magnificent Seven” stocks have been around for decades, unlike many companies that dominated during the dot-com bubble.
  

• AI-driven refresh cycle: He predicts consumers' desire for new AI applications on smartphones and personal computers will trigger the "biggest refresh cycle in history," benefiting tech giants like Apple, Nvidia, Microsoft, and Oracle.
  
  

• Nvidia's valuation: Despite Nvidia's high valuation, Eisman isn’t concerned, citing the company's tripled earnings as justification for its current price. (Eisman said he owns “a lot” of Nvidia shares.)
  

• No doomsday scenario: While Eisman acknowledges a slowdown in the US economy, he sees no fundamental reason to short stocks. “I predicted the end of the world once — it was pretty awful for everybody,” he said. “I have no interest in predicting it again, and there’s no data to show that it’s going to happen.”
  

• Speaking of shorting, Tesla is a very popular short. But Eisman said shorting Tesla can be challenging when investors focus on its self-driving car and AI ambitions rather than fundamentals — it’s simply too difficult to short in his view. 

Why it matters:

Eisman's views carry some weight thanks to his successful "Big Short" bet against subprime mortgages before the global financial crisis. 

Money machines: His views also align with those of other major stock commentators and investors. His comments come the same week that Aswath Damodaran—an NYU professor, aka “the Dean of Valuation”—said the Magnificent Seven have become “value stocks for investors who care about earnings and cash flows.”

• “It’s been an astonishing run,” for big tech, he said. “Before we dismiss these as risky tech companies, these are the money machines…If we’re in a danger zone, it’s not just seven stocks that are in the danger zone. It’s the market overall.”
  

• He cautioned, though, that investors ought to stay disciplined and careful. “This market (might be) reaching a zone where you need a correction to clean it up again.”
  

• Moving forward into the November presidential election, Damodaran says rate cuts will be less of a focus — they will likely come this fall — and investors will pay much closer attention to tariffs and taxes, “which will be driven by what happens in the election.”

Read more about Eisman and lessons from 2008

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Quick Poll

On Wednesday, we asked: What's your primary reason for drinking non-alcoholic beer?

— About half of readers don’t drink non-alcoholic beer. Of those who do, most opt for it for health reasons or because they enjoy beer’s taste but don’t want the alcohol. At least one non-fan said, “What’s the point?” Another: “No taste and no flavor…what’s the purpose?”

— “Extend my lifespan and don't enjoy the feeling of drinking alcohol. Why should we be controlled by alcohol? There are so many activities that are more fun than just drinking,” one said. Another: “I like the taste and like cold drinks in the summer and don’t want the alcohol.”

— “NA beer really tastes great, and there are so many taste options available without any of the downsides of consuming alcohol.”

See you next time!

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