CWS Market Review – October 15, 2024

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The Stock Market Rally Turns Two Years Old

The bond market was closed on Monday in honor of Columbus Day, but the stock market was open, and it was a good day. The S&P 500 rallied to another all-time high. This was our 46th new high of this year. The market gave back some of those gains today, but we’re very close to more new highs.

Interestingly, we just passed the two-year anniversary of the market’s last major low. That came on October 11, 2022 when the S&P 500 closed at 3,577.03. From there to Monday’s close, the S&P 500 has gained more than 63%, not including dividends.

It’s been a remarkable rally, but what’s impressed me about the last two years, on top of the impressive gain, is how steady it’s been. To be sure, there have been bumps and turns like last August, but for the most part, this has been a smooth and steady 63% run.

I was also pleased to see several of our Buy List stocks hit new highs today like Broadridge Financial Solutions (BR), FICO (FICO), Fiserv (FI), Intercontinental Exchange (ICE) and Science Applications International (SAIC).

We’re in the early stages of earnings season and so far, the results look pretty good. According to Bloomberg, “analysts expect S&P 500 firms to report a 4.2% increase in third-quarter earnings versus a year earlier, down from a 7% forecast in mid-July.”

It’s early but so far, 30 companies in the S&P 500 have reported results. Earnings are coming in at an average of 5% better than estimates. At this time last quarter, earnings were running 3% higher than expected.

As we know, Wall Street’s usual game is to be as downbeat as possible going into earnings season thereby getting Wall Street analysts to lower expectations. Then, when earnings day comes, they announce a big earnings beat and hopefully, the stock will rally.

That’s pretty much what happened last week when the first earnings reports came out. Usually, the big banks are the first to report and that sets the tone for earnings season.

On Friday, JPMorgan (JPM) reported Q3 earnings of $4.37 per share. That easily topped the consensus of $4.01 per share. JPM is the biggest boy of a lot of big boys on Wall Street, and its results are very influential. It’s a Dow component and one of the largest companies by market value on Wall Street. If JPM is doing well, that’s probably a good sign for all banks.

JPM is particularly good at steering Wall Street’s outlook. Two months ago, the Street was expecting JPM to make $17.05 per share for next year. That’s now down to $16.73 per share.

JPM had a very good quarter for Q3, and lower rates will serve them well. More good news is that JPM said its net interest income will be about $92.5 billion this year. That’s up from its previous guidance of $91 billion. About geopolitical risks, CEO Jamie Dimon said, “Recent events show that conditions are treacherous and getting worse.”

Also on Friday, though not nearly as big, Wells Fargo (WFC) said it had particularly good results. For Q3, Wells made $1.52 per share which was 24 cents better than expected. The stock got a nice 5.6% pop on Friday, and the shares have continued to rally since then. Until a month ago, Wells looked like it was one of the weaker banks.

Thanks to the good earnings reports from many Wall Street banks, financial stocks have been doing well of late. Here’s the S&P 500 Financial Index compared with the S&P 500.

The financials hit a new high yesterday, and 36% of its members made new 52-week highs.

We had more good reports today. This morning, Goldman Sachs (GS) released a very good earnings report. For Q3, the bank’s profits increased 45% to $8.40 per share. That was above Wall Street’s consensus for $6.89 per share. Quarterly revenue was $12.70 billion. Wall Street has been looking for $11.8 billion.

Lower rates will be good for Goldman, as well. Last quarter, Goldman’s investment banking revenue rose 20% to $1.87 billion. Equities trading was up 18% to $3.5 billion.

Also on Tuesday, Bank of America (BAC) said it made 81 cents per share for its Q3. That was a four-cent beat. Compared with last year, the bank’s net income was down 12%. Revenue rose a bit to $25.49 billion.

In addition to traditional banking activity, BAC did very well last quarter with Wall Street operations like trading. BAC’s net interest income fell 2.9% to $14.1 billion.

In BlackRock’s (BLK) earnings report, the company said that its assets under management rose to $11.5 trillion. That’s staggering. In Q3, BLK had inflows of $221 billion. For the quarter, BlackRock made $10.90 per share which beat expectations by 92 cents per share.

Citigroup (C) has been trying to turn itself around, and the early results look favorable. The bank’s traders had their best Q3 performance “in at least a decade.” Revenue for its markets division rose a tiny bit to $4.82 billion. Trading revenue rose by 32%.

Citi’s credit card business is dragging along, but its other businesses are helping to make up for the weakness. CEO Jane Fraser is trying to engineer a major about-face for the Wall Street giant. While Citi is looking better, it still has a way to go to get back to full health.

Last quarter, the bank’s fees from investment banking increased 44%. Citi’s EPS fell to $1.51. Bloomberg noted that the “quarter included a provision of $2.7 billion, which was driven by the higher losses in the company’s card business.”

After today, we’ll see more of the non-banks report earnings. Wall Street is mostly optimistic.

Steer Clear of Boeing

I mentioned the turnaround efforts at Citigroup which leads me to an important lesson with investing. One kind of stock I generally steer clear of is the turnaround play. These are companies that have fallen on hard times. With the poor performance, the companies now have the latitude to make dramatic changes to right the ship.

However, in my experience, the problems usually run very deep, and the proposed changes are largely cosmetic. Turnaround stocks rarely turn.

The problem for investors is that the stocks can often appear to be value stocks. The prices are low relative to the company’s recent performance. The problem is that these ratios are backward looking, and it’s the future that’s worried the market.

A good recent example is Boeing (BA). The airplane maker has been in a mess recently. Today the company said it may turn to Wall Street to raise a heap of cash in stock or debt. Boeing said it could raise as much as $25 billion. That could stem some of the short-term financial issues, but Boeing is far from being a strong company.

In a separate filing, Boeing said it reached a $10 billion credit agreement with banks. Some of the credit agencies have warned Boeing that its credit may be downgraded. That would be very costly to Boeing.

Last week, CEO Kelly Ortberg said Boeing could lay off 17,000 workers which is about 10% of its workforce. On top of that, Boeing faces a strike from 33,000 of its machinists. S&P said the strike is costing Boeing more than $1 billion a month.

In January, a Boeing 737 Max 9 suffered “uncontrolled decompression.” A door plug flew off the airplane. Fortunately, no one was hurt but it was not favorable for Boeing. The FAA told Boeing that it’s under investigation.

Boeing’s stock is currently going for 1.24 times sales. In normal times, that could be considered cheap, but not now. Boeing has lots of problems that need to be addressed. I hope the company can turn itself around, but I caution investors that any value in Boeing may be a mirage.

This week will will be dominated by earnings news. Later this week, our first Buy List stock will report its earnings. I’m expecting more good results from our stocks.

I’ll be paying attention to the actual results, but I also want to hear what our stocks have to say about guidance. Typically, our stocks start out the year conservative with guidance and then will gradually raise guidance as the year goes on.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on October 15th, 2024 at 5:24 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.