The specter of the recession continues to inspire fear. Not only in the euro area, but also in the United States. The US quarterly season continues, after JP Morgan’s accounts for the second quarter of 2021, far below expectations. Tomorrow it will be up to Bank of America and Goldman Sachs and then, later in the week, to Netflix and Tesla. If for the first two realities there will be a reflection of fears about a global economic slowdown, after the Russian aggression in Ukraine. For the Tech sector, on the other hand, a lot will depend on the rest of the year. The resurgence of infections from Covid-19 is clear, and could be a driving force for the digital entertainment segment, as it was in 2020.
A decisive week is about to open for global banks. In the case of both Bank of America and Goldman Sachs, the accounts estimates for the second quarter of the year are negative. From the first, analysts expect 0.77 cents per share, considerably lower than the $ 1.03 per share in the round a year ago. The forecasts for the bank led by David Solomon are even worse. Analysts expect $ 6.99 per share, up from $ 15.02 previously. And it is not the only one. The US banking universe could reflect a significant contraction ahead of the coming months. One of the biggest giants of securities trading, namely Charles Schwab, is also seen in positive territory. Analysts see 0.91 cents per share, compared to 0.70 in the same quarter last year. And the worst may not have come yet. As Peter Kraus, CEO of Aperture Investors, part of the Generali Investments universe remarks, “We have not yet seen the minimum in the US equity markets or in other countries”. We will see
What is certain is that the summer earnings whirlwind for the big Wall Street banks did not start well. JPMorgan Chase, the first US giant to release results for the second quarter of 2022, posted a disappointing quarterly report, also due to higher provisions to cover potential losses in the face of growing risks of a recession. The bank posted earnings of $ 8.65 billion, or $ 2.76 per share, compared to $ 11.95 billion (-28%), or $ 3.78 per share, a year ago. Revenues (reported) were 30.72 billion dollars, compared with 30.48 billion dollars in the second quarter of 2021. The market, according to Refinitiv data, expected earnings per share of 2.88 dollars on revenues of $ 31.95 billion. In addition, the loan loss provision was $ 1.1 billion, including $ 657 million in net charges and a net reserve build-up of $ 428 million, largely reflecting the increase in loans and a modest deterioration in the economic outlook. Worsening that could increase if the war in Ukraine were to last beyond the summer. Dimon has never hidden that the scenario is chiaroscuro and has repeatedly remarked that the global economy will face significant challenges, both in the short and in the medium term.
On the other hand, in the second quarter of 2022 Morgan Stanley saw net revenues amount to $ 13.1 billion, down from $ 14.8 billion in the same period last year. Net earnings per share, on the other hand, were $ 1.39, compared with $ 1.85 in the second quarter of last year. In total, earnings drop from $ 3.5 billion to $ 2.5 billion. The decline recorded was, also in this case, higher than expected. Financial analysts had expected earnings per share of $ 1.57, with revenues of $ 13.44 billion.
“Overall, the company had a solid quarter despite the market scenario being more volatile than it has been in a long time,” explained James Gorman, the bank’s president and chief executive officer. “The solid results obtained in the equity and fixed income segments – he continued – helped to partially offset the weakening of the investment banking activity. We continue to attract positive flows in our wealth management activities and investment management continues to benefit from the its diversification. “Finally, Gorman commented,” we ended the quarter with a solid balance sheet that allows us to look forward with confidence. “The wait is for a further deterioration, thanks to a situation of flare-ups in prices far beyond forecasts just six months ago by the Federal Reserve.
Meanwhile, this week ended with the fifth consecutive session down for two of Wall Street’s main indices, the Dow Jones and the S&P 500. What weighed was the record inflation recorded last Wednesday. Consumer prices in the United States rose 9.1% in June compared to a year earlier, more than 8.8% of expectations, after + 8.6% last month. It was the highest figure since November 1981. And to worry there is also the figure for “Core” inflation, which grew by 5.9% on a trend basis, after the + 6% of the previous month, but expectations they were for + 5.7%. Over the past year, energy prices have risen by 41.6% and food prices by 10.4%, the highest figures since April 1980 and February 1981, respectively.
In practice, these are factors that will have to be addressed by investment banks and monetary institutions, which will have to find a balance in the individual positions. As Tiffany Wilding, US economist at Pimco points out, “to the Federal Reserve, these inflation figures amount to a red alert. Core inflation appears to be largely consolidated across goods and services and as a result we have raised our forecasts for Core CPI inflation and now expect 2022 to close at 5.5%. An element that could deteriorate consumption, and therefore the profitability of Wall Street banks, which are increasingly involved in the retail market. “We expect the FOMC (Federal Open Market Committee, the operating arm of the Fed) to announce at least another 75 basis point hike in July and September, but now it is legitimate to expect a 100 basis point hike as well,” warns Wilding. If so, Wall Street’s third quarter could be even heavier.