We’re already seeing the headlines react to earnings season getting underway.
Many companies are reporting good news, but that doesn’t always mean that it’s time to invest.
Today, I’ll unpack what we’re seeing and one opportunity you can take advantage of no matter how things play out. And be sure to check out one important question we have for you below.
Here’s the rundown to jump-start your week…
3 Headlines for the Week:
Big Banks Have an Uncertain Future
No. 1: The Recent Sales Boom Could Be Complicated
Takeaway: There’s no doubt that Americans are feeling more comfortable resuming pre-pandemic activities such as going to restaurants, bars and department stores. The spending doesn’t lie. Retail sales in March surged 9.8%. And as we make up for lost trips and nights out, demand for goods and services is seeing a big increase.
This demand can easily set off a domino effect for the markets. It’ll likely help the job market recover more quickly. Yet it could also increase inflation as supply chains fail to keep up. These higher prices could cause the Federal Reserve to raise interest rates, making borrowing more difficult for everyday Americans, businesses and banks…
No. 2: As Americans Are Spending, They’re Not Borrowing
Takeaway: While the economy continues to recover, some Americans have plenty of cash on hand — especially after the last round of stimulus checks.
This might seem like good news for banks at first. When consumers have cash to spend, they’re less likely to fall behind on debts. But this also means that these people are less likely to borrow more in the near future. And that could hurt banks’ bottom lines in the long run.
Most banks are relying on income from loan growth to offset the low interest rates we’re seeing today. Bank of America and JPMorgan mentioned this in their earnings reports. Both said that part of their forecasted growth for the rest of the year relies on people taking out more loans and slowing down their loan repayments like they were doing before COVID-19 hit.
Of course, that’s not guaranteed. Only time will tell whether consumer spending habits will return to how they were before the pandemic. In the meantime, the outlook for bank stocks isn’t promising, despite their recent blowout earnings…
No. 3: Big Banks Might Beat Earning Expectations Now, but What About Later?
Takeaway: Wall Street has high hopes for this quarter’s earnings season. And big banks delivered strong results to kick things off. JPMorgan, Goldman Sachs and Wells Fargo crushed estimates. Goldman’s earnings grew 500% year over year, beating some estimates by 90%. One analyst called that growth “unbelievable.”
But amazing earnings reports don’t necessarily translate to higher stock prices. Banks like Citigroup and Bank of America also beat estimates, yet their stocks still declined following the news. And that signals something we’ve been keeping an eye on here at American Investor Today: Big banks have a cloudy future ahead.
The good news is, our team has the best way to profit regardless of how this plays out for them…
1 Way to Profit:
Fintech Will Be the Way Forward
No matter how you look at it, banks will likely lose in the long run. A significant part of their business relies on uncertain consumer behavior. And the threat of inflation could disrupt the future as well.
Not to mention, there’s already a deep distrust of big banks. According to the Chicago Booth/Kellogg School Financial Trust Index, as of December 2020, only about 40% of Americans surveyed trusted banks.
It’s why financial technology — or fintech — is displacing traditional financial institutions like banks. As Alpha Investor founder Charles Mizrahi has told me, fintech has led to all sorts of solutions…
Big banks often have more red tape and restrictive conditions that make it harder for everyday Americans to access loans. And their online services are often slow to process. But with fintech, we’re seeing better banking and credit terms for individuals and customizable payment solutions for small businesses. And transactions are usually much more efficient and secure.
Fintech might not necessarily be a new mega trend, but it is the future of finance. There’s no sign of it slowing down. Global consulting firm EY found that worldwide adoption of fintech services has jumped from just 16% in 2015 to 64% in 2019.
And Research and Markets projects that the global fintech market will grow at a compound annual rate of nearly 24% from 2020 to 2025. It could reach a market value of over $300 billion. And smart investors can start tapping into that growth today with broad exposure via the Global X FinTech ETF (Nasdaq: FINX).
This exchange-traded fund (ETF) holds a basket of top companies in the fintech space such as Square, PayPal and AfterPay. These are the businesses that’ll lead the way in transforming traditional finance.
1 Question for You:
How Are You Profiting on Earnings Season?
We’ve showed you that banks aren’t the best bet for the market or for earnings season, despite posting stellar results. But how do you plan on taking advantage of earnings season?
Will you be following Chad Shoop’s time-tested approach to it?
If you already have, let us know how Chad’s trades have helped you grow your portfolio by writing in right here.
And if you haven’t checked it out yet, be sure to do so by watching his special presentation right here. He’ll have plenty of trades lined up as companies announce their results, and you won’t want to miss out on them.
Senior Managing Editor, American Investor Today