It's a Big Week for Stocks... And They Could Be Preparing to Break Out It has been over a month since the banking crisis began... Silicon Valley Bank collapsed on March 10. It was the second-largest bank failure in U.S. history. Signature Bank (SBNY) followed days later. And now, a third domino has fallen. First Republic Bank (FRC) was seized by the Federal Deposit Insurance Corporation ("FDIC") early this morning. In an effort to calm the market, U.S. regulators decided to auction off the company. And it sold to the highest bidder... Headline No. 1: JPMorgan Chase (JPM) will acquire First Republic Bank from the FDIC for $10.6 billion. McCall's Call: New York-based JPMorgan Chase is already the country's largest bank by total assets and deposits. And after this acquisition, it will only grow larger. JPMorgan will receive approximately $92 billion in deposits – and also take control of $173 billion in loans and $30 billion in securities. First Republic was known for catering to the wealthy in major cities around the country. But after the Silicon Valley Bank failure, it experienced an outflow of deposits. And that's what led to its collapse. The stock fell 43% on Friday as rumors began swirling about the bank's potential failure. Trading was halted at $3.51 – a 98% decline from First Republic's all-time intraday high of $222.86 in November 2021. But I found it interesting that the SPDR S&P Regional Banking Fund (KRE) – which tracks regional banks in the S&P 500 Index – closed up 1.7% on Friday. Today, it was down almost 3%. It has certainly been a rough couple of months for the banking industry. But the big winner from First Republic's failure may be JPMorgan. The stock finished today up 2% and hit its best level in more than a month. And the transition is happening quickly... This afternoon, First Republic's 84 former branches reopened as JPMorgan bank branches. They're largely located in metro centers – San Francisco, New York, and Los Angeles – and will provide JPMorgan with better access to wealthy clients in those cities. So it looks like this could be one of those classic "the rich get richer" scenarios... Now, JPMorgan said it could spend up to $2 billion on restructuring through 2024. But the deal will result in a one-time gain on its books of $2.6 billion. Plus, the bank anticipates it will generate $500 million in profit from the takeover – annually! So yes... this rich bank is getting a whole lot richer. If more regional banks collapse, we now know that the big banks are there to pick their parts for pennies on the dollar. And at the end of the day, they'll come out on top and victorious. Headline No. 2: More than 160 S&P 500 companies are scheduled to report quarterly earnings this week. McCall's Call: Earnings season is in full swing. More than half of the companies in the S&P 500 (about 270) have already released their latest quarterly numbers. And many more will do so in the coming days. Apple (AAPL) is one of the biggest to watch. The largest publicly traded company in the world will release its numbers after the closing bell on Thursday. But of course, we want to focus on what these numbers mean for the market as a whole... So far, the results have been mostly in line with previous years. Nearly 80% of the firms that have reported have beat consensus estimates for earnings, which is close to the three-year average and better than the five- and 10-year averages. Still, based on the numbers already released and Wall Street's estimates for what's ahead, the S&P 500's average earnings are currently down 3.7% from the same quarter last year. That would make this the second consecutive quarter of negative growth. But analysts had been expecting far worse – a decline of 6.7%. Meanwhile, the S&P 500's average revenue is up 2.9% year over year. It's a positive figure... but the lowest rate of revenue growth since the third quarter of 2020. And things aren't expected to improve next quarter. Analysts currently estimate that second-quarter earnings will fall 5% year over year. However, the second half of the year should be better. Wall Street believes that earnings will grow 8.8% in the fourth quarter. And if that's the case, S&P 500 earnings would be up 1.2% through the full year. That's pretty good despite two consecutive quarters of declines. Either way, I believe the expectations for this quarter and next are already priced into the market. And the back half of the year – when growth should resume – is too far away to try and predict. So what does this mean? It means that earnings are negative right now. But that's no surprise after the big numbers that were posted in 2022 following the COVID-19 shutdowns that lingered into 2021. And it has already been baked into share prices. So if anything, the better-than-expected figures have the market on the verge of a mini-breakout. That's what makes this week so important... The market is already climbing. And any additional earnings "surprises" could add more fuel to the fire. Then there's the Federal Reserve. The central bank will meet over the next two days and is expected to raise interest rates by another 25 basis points (0.25%) on Wednesday. But if it makes any sort of indication that it's planning to pause its hike schedule going forward, stocks could see a big move higher into the end of the week. As always, only time will tell. I'll keep you up to date on everything that's happening right here in Daily Insight. Here's to the future, Matt McCall Editor, Daily Insight May 1, 2023 Did You Miss My Latest Podcast? Inflation. It's all anyone seems to be talking about in the financial world these days. For months now, I've been saying that the worst of inflation is behind us and pounding the table on the imminent decline in consumer prices. So on this episode of Making Money With Matt McCall, Senior Macro Strategist at Bloomberg Intelligence Mike McGlone joins me to talk about "deflation." We tackle a wide variety of topics – everything from stocks to gold, copper, and bitcoin (BTC). Mike shares why gold prices should head higher... why the world's largest crypto could climb to $100,000... and why copper is likely to hit $3 per pound before $5. If you have money in stocks, commodities, or cryptos, this is a show and interview you won't want to miss. |