The good times are rolling for America’s big banks. JPMorgan Chase, Citigroup, Goldman Sachs, and Wells Fargo all reported impressive earnings beats and said demand for credit is strong—a good bellwether that suggests the broader economy is in good shape.
Interestingly, profits from lending were down slightly, but that makes sense because interest rates fell last year. Nevertheless, investment banking and trading profits were soaring. That also makes sense—mergers and acquisitions, which create handsome fees, are more likely to
happen when interest rates are neither too high nor too low—when the economy isn’t booming or slumping, in other words. That’s when both sides are most likely to feel like they’re getting a good deal.
The KBW Nasdaq Bank Index had its best day on Wednesday since just after the presidential election. Bank of America and Morgan Stanley add to the picture Thursday.
The economy is doing
well and it’s clear what’s behind that. Strong jobs figures from last week, combined with a report yesterday that showed core inflation cooling, suggest Goldilocks is alive and well—activity is not too hot and not too cold.
JPMorgan CEO Jamie Dimon, however, has made a career out of worrying. He noted that inflation may remain a problem, preventing the Federal Reserve from lowering interest rates as much as investors would like.
Geopolitics are also a concern. Even though the shaky Gaza cease-fire looks promising, Russia and China will pose foreign policy headaches for President-elect Donald Trump, who takes office on Monday.
Dimon has
been wrong before—when the Fed started raising interest rates in 2022, he famously predicted an “economic hurricane” that never arrived. But even Dimon was mostly chipper, quick to point out that unemployment is low, consumer spending is strong, and businesses are optimistic.
That should be good for everyone, not just banks.
—Brian Swint
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Signs Point to a Fed Pause on Rate Cutting
A higher-than-expected December inflation report on Wednesday underscored that taming price growth remains bumpier than economists forecast. The confirmation that progress toward the central bank’s target has stalled nearly guarantees that Federal Reserve officials will vote to hold interest rates steady this month.
- The consumer price index rose 2.9% in December from a year earlier, higher than the 2.7% rate in November and a tick higher than expected. Inflation rose 0.4% for December from the prior month, also higher than economists predicted.
- Core inflation minus food and energy
prices, however, was somewhat milder than expected. New York Fed President John Williams expects inflation to decline toward 2%, but said it would take time, and the process may be choppy.
- Overall economic activity increased “slightly to moderately” over the past six weeks, including stronger-than-expected holiday
sales in most Fed districts, offset by an overall decline in construction activity, the Federal Reserve’s latest Beige Book survey reported. Some manufacturers stockpiled inventories on expectations of rising tariffs.
- But it’s been good news for banks. JPMorgan and Goldman Sachs reported a surge in fourth-quarter profit as corporate customers emboldened by administration change in Washington rev up Wall Street’s dealmaking engines. JPMorgan’s finance chief Jeremy Barnum noted a significant increase in optimism in the overall environment.
What’s Next: The futures market still leans toward the view that rates will come down by a half a percentage point this year. The probability of that happening was 29.7% on the CME FedWatch tool, versus the 13.4% probability that the Fed cuts rates by three-quarters of a point.
—Megan Leonhardt, Connor Smith, and Janet H. Cho
This Short Seller Is Packing Up and Going Home
One of Wall Street’s best-known short sellers, Nate Anderson, is shutting down his Hindenburg Research firm after eight years of campaigns that wiped billions of dollars off the stock prices of companies through often-scathing reports criticizing corporations and their management.
- In a note posted to the Hindenburg Research’s website, Anderson wrote, “The intensity and focus has come at the cost of missing a lot of the rest of the world and the people I care about. I now view Hindenburg as a chapter in my life, not a central thing that defines me.”
- Hindenburg focused on finding accounting irregularities, unethical business practices, and undisclosed regulatory, product, or financial issues. Some recent reports focused on vehicle seller Carvana, online gaming platform Roblox, and AI server firm Super Micro. Hindenburg shorted the shares of these companies before publishing its reports on them.
- Short selling is a bet that a stock will fall. The practice isn’t without controversy. Many executives of firms that are targeted
by short sellers push back at their allegations, especially when the short seller’s views are shared in a public manner.
- Carl Icahn, an activist known for taking stakes in companies and then engaging them publicly to make changes, had a bitter battle with Hindenburg, which accused his company Icahn Enterprises having a “Ponzi-like” economic structure, claims Icahn called “meritless.”
What’s Next: Anderson wrote in
his note on Wednesday that over the next six months he plans to “open-source every aspect of our model and how we conduct our investigations.”
—Anita Hamilton
Cryptos Fly Amid Inflation Surprise, SEC Developments
Cryptocurrencies had a great day Wednesday as
