Question of the Day|
Who do you think won the First Vice Presidential Debate and why?
There was so much hoopla leading up to the Vice Presidential debate last night, but let's be honest, we learned nothing new (Biden has a really great smile, and Ryan's son only likes to fist pump). Both candidates played to their strengths and perhaps the biggest accomplishment from both sides was there were no major gaffs. Fact checkers were really looking forward to this debate (maybe that's where all those extra jobs last month on the BLS report and this week on the initial claims came from), but were left with nothing really to chew on. The candidates at the Vice Presidential debate and doctors have a common oath; do no harm, and it appears that both played that part well. The pundits across the spectrum indicated that they thought Biden won, but both sides were impressed with how well Ryan held up under fire, but still gave no specifics. I was really hoping for most details and specifics, but I was left without much to chew on also.
However, a lot of the commentary I have read this morning regarding the debate is dwelling on facial expressions and mannerisms. I don't mean to be crude, but who really cares? An eye roll or smile should not dictate your vote in the upcoming election. Biden was very off the cuff, showing an energetic Vice President; Ryan was cool and collected. There was some good back and forth, with shots being taken at the other from both sides. All in all, it was a very entertaining debate, but I would love to see more difficult questions being asked. Some of the follow up questions were legit and actually thought provoking, while others were entirely too much of a softball question. That being said, both candidates took those lobs and smashed them out of the park, but still. I want to learn more about these men and their running mates, easy questions won't help me to do that.
Stocks Struggle to Trade Higher
After four consecutive days of declines for the Dow Jones Industrial Average, this morning's indications are for a positive open and that hopes that we may finish the trading week with some modest gains; Dow futures are indicating a higher open this morning, which is very likely the result of the stronger than expected results from the country's largest bank, JPMorgan Chase (NYSE:JPM).
JPM performed superbly during the September quarter. One encouraging comment from CEO Jamie Dimon was that he believed the housing market had turned a corner; this is clearly encouraging for our economy as a whole as a recovery in the housing sector is essential in assisting overall macroeconomic growth here at home. Of course, all is still not well in the housing sector, but "turning the corner" certainly is good (more details on JPM below).
While the stronger than expected financial results from JPMorgan are lifting stocks during premarket activity, investors continue to worry about slowing growth around the world and about the debt crisis in Europe. Greece and Spain continue to be the in the crosshairs. Everyone still expects the Spanish government to ask for assistance from the euro zone's fund mechanisms, but nothing yet. Spain's reluctance to ask for help is not because it does not need it but because such assistance comes in conjunction with fiscal reforms that the nation is just incapable of making. It is not that Spain has not already taken steps to fix its fiscal problems; in fact, the steps taken by Spain have helped ease investor worries and pushed benchmark 10-year government bond yields, which soared above 7% in July, down to under 6% today. The problem is that more is needed in order to get assistance from the euro zone, and at the moment Spain, despite all its efforts to reduce spending, may get rejected if it asks for help because the requirements are just impossible to meet.
With Europe still in the back of investors' minds and with an overall negative outlook for this earnings season, it is likely that stocks will continue to be under pressure in the near term. Later on this morning we will get a glimpse at consumer sentiment, considered a leading economic indicator. So far expectations are for an increase in sentiment to 78.5 from 78.3, not a large change but still in a positive direction. Failure to meet this threshold will likely put stock back down in losing ground today.
Banks On Deck For Earnings Season
Earnings season unofficially began earlier this week with Alcoa's (NYSE:AA) earnings beat on Tuesday after the bell (the stock has been down since then). However, it is the earnings this morning that many have had their eyes on all week. The first group of the big financial institutions report earnings this morning, with JPMorgan (JPM) and Wells Fargo (NYSE:WFC) issuing results.
JPMorgan reported third quarter earnings this morning that beat the Street's estimates on both the top and bottom line. Since the first quarter, JPM has been mired in extra scrutiny following the "London Whale" debacle (the Company took a $449 million loss during the quarter for it), but there were definitely positives to the report. Housing improved (CEO Jamie Dimon feels that housing has turned the corner) as a result of low interest rates which have spurred some home buying and refinancing. The growth in the mortgage business helped to push JPM to a record quarter. The conference call is going on right now, but it appears to be an overall strong quarter. Many highlights can hopefully be extrapolated to other banks; however, Wells Fargo (WFC) apparently did not see many of the same benefits.
Also before the bell on Friday, Wells Fargo released operational results for its third quarter that, unlike JPM, fell short of expectations this morning. Revenue improved year over year but fell just shy of expectations; earnings beat by a penny. The best highlight that we have seen so far is the growth in the mortgage business. JPM reported a surge in mortgage lending and so did WFC. With a smaller capital-markets business than its big bank peers, Wells Fargo is more closely watched in the investment community for its mortgage banking results. Led by a surge in mortgage growth, with more loans and higher fees, the Company was able to see a better mortgage business. Credit-loss provisions totaled $1.59 billion, compared with $1.81 billion a year earlier and $1.8 billion in the second quarter. Net charge-offs, or loans lenders don't think are collectible, were 1.21% of average loans, compared with 1.37% a year earlier an 1.15% in the second quarter.
Shares of JPM have been straddling the breakeven point this morning, vacillating between going green and red, depending on the conference call. While WFC is indicating to open approximately 2% lower this morning. It seems that the Street's trend of "ignoring" bottom line beats holds true again this quarter. It is more important to beat on the top line and show an improving business, than finding more "fat" to cut to allow for a beat on the bottom line.
Producer Price Index
By David Urani
The September Producer Price Index this morning will relieve a lot of folks because core prices (excluding food and energy) were unchanged month to month. But the 1.1% increase in the headline index is hard to ignore. Energy prices rose by 4.7% while food prices were up 0.2%. The increase comes after a 1.7% gain in August. It's a little bit ominous considering August's gain had been the largest since June 2009, while the latest reading was the next highest since February 2011.
In normal times, these aren't necessarily the kinds of numbers that would be ringing alarm bells, but given that there's been a clear global slowdown over the past couple of months it's hurtful to have energy and food prices as high as they are. Corn remains just 7% off the record highs (it also surged by 4% yesterday on a USDA report) while oil remains above $90.
In the case of corn, obviously the bad weather came at an unfortunate time. However, the fact that crude oil was testing $100 just last month is counterintuitive to a global slowdown. Certainly there remain tensions in the Middle East, but the fact that world central bank printing presses are on turbo charge isn't going to help this situation at a time when manufacturers were already griping about rising input prices.