Earnings You Can Bank On … Maybe
It is Wednesday, my Great Ones!
Today, we’re talking about easy money. No, not the 1983 movie with Rodney Dangerfield and Joe Pesci, which no one seems to talk about anymore. We both know that movie can’t get no respect.
Anyway … the Fed isn’t easing up on its easy money policy. Interest rates? Staying as low, low, low, low as Flo Rida. Hooray, hooray, oh happy day.
Regarding inflation, Fed Chairman Jerome Powell said once again that rising price pressures will be, you guessed it, transitory throughout the rest of the year (and there’s that “transitory” word again that the Fed loves).
You don’t have to be psychic to have predicted this one … in yesterday’s Great Stuff, we pretty much said as much.
Heck, Powell even talked up the Base Effect in today’s speech — you know, that whole thing where year-over-year comparisons look wonky right now because last year’s pandemic pressures absolutely sucked?
Powell went on to say: “Inflation is being temporarily boosted by base effects, as the sharp pandemic-related price declines from last spring drop out of the 12-month calculation.”
Stocks initially rallied on Powell’s pep talk but ended up not moving much at all by the end of the trading day. Bank stocks — you knew they were bound to come up at some point today — also rallied once their bang-up reports hit the airwaves. Yet, that banking binge was short-lived.
Sure, tech investors rejoiced over the news that the low interest rate environment isn’t going anywhere … but this would sure be a bummer for any banks relying on said interest rates to, well, make bank.
For example, while Citigroup (NYSE: C) positively destroyed both earnings and revenue estimates last quarter, the company blamed lower interest rates for its revenue falling 12% year over year. Citigroup also noted that dropping credit card loans and poor results from fixed-income trading played a part in the declining revenue.
Bank of America (NYSE: BAC) suffered from the same stresses last quarter, beating earnings expectations but missing on revenue.
Yet, both Bank of America, Citigroup and even Wells Fargo (NYSE: WFC) were confident enough to release some of the cash reserves they kept on hand in case of credit defaults that were (are?) widely expected from the pandemic’s fallout.
What’s more, freeing up these cash reserves is partly why bank earnings looked extra-stellar this quarter, even with lackluster revenue growth. Interesting…
Between the bank earnings and Powell’s easy money pondering … when you stir all these factors up into a big boiling bouillabaisse … we get a picture very similar to what we noted right here last week. Remember how the major GDP recovery and reopening stocks — as well as the major market indexes — are all treading water instead of making new highs?
So, even though all economic indicators continue to point toward a steady U.S. recovery from the pandemic … the peak optimism of post-pandemic growth might already be priced into many stocks — perhaps even the banking stocks making their way through the earnings confessional this week.
Throw in some worries about banks losing revenue in a low interest rate environment, and it’s no wonder these bank stocks are dropping like cartoon safes in light of their kinda-good-but-not-really-good earnings.
What do you think, Great Ones? Are you a big fan of the big banks, or do you steer clear of the financial sector altogether?
Let me know what you’re up to these days at GreatStuffToday@BanyanHill.com.
Editor’s Note: New Presentation Shows What’s Next For Gold (Just Released)
A presentation just landed on my desk from our newest analyst at Banyan Hill, Adam O’Dell.
In it, Adam reveals the details of an extremely rare profit situation that’s unfolding in the gold markets right now. The last time it showed up, investors had the chance to make truly exceptional gains as high as 4,558% … enough to turn $10,000 into nearly half a million bucks.
Delta Air Lines (NYSE: DAL) is kicking off earnings season for the airlines, and its post-pandemic recovery is still up in the air. What, too obvious? Fine then…
Delta said that passenger traffic is improving with the summer travel season and people using business travel as an excuse to get out of the house … but things still aren’t great, with international flight volume caught in a tailspin. Adjusted earnings came in at a loss of $1.07 per share, which beat expectations for a loss of $1.38 per share.
And while revenue of $7.13 billion beat analysts’ estimates for $6.22 billion, that revenue is still down 43% compared to 2019’s pre-pandemic levels. Going forward, Delta expects revenue to improve this quarter, which in this case, means only down 30% to 35% from 2019. Maybe it’s time to pull an American Airlines and cut back on olives.
Peloton: A Powerhouse Of Potential … Problems
For Peloton (Nasdaq: PTON) bulls, the company was supposed to bring balance to the workout industry … to leave it in disruption. But in reality — no matter how much Peloton nuts claim “it’s not an exercise routine, it’s a social revolution!” — the pandemic was really the only boon that Peloton actually had. Even back in May, we were worried for Peloton about “competition from in-person fitness classes and non-garage-based workout spaces as more real gyms reopen.”
Well, speak of the gym-reopening devil. Wedbush Analyst James Hardiman finally brought some sense back into the workout stock conversation today, downgrading PTON shares from outperform to neutral while also dropping his price target from $130 to $115.
Hardiman also believes that Peloton will need to “generate its own momentum through savvy marketing and compelling new products” in the post-pandemic era. I mean, when your exercise bike literally costs the same as five years of gym memberships, yes, regular gym life is a very real threat that’s right on the doorstep for any PTON investors.
What do y’all think, though? Does the company still hold a chance against in-person workout classes that offer, you know … actual social interaction at the gym? Or will the Peloton join the ranks of Tae-Bo or those old Jane Fonda VHS tapes and become an at-home workout has-been once people go outside more?
Peloton crowd, write to us with your thoughts: GreatStuffToday@BanyanHill.com.
The plant-based foods biz is bustling this week! If you thought times were tough in the tenuous chicken tender game, just wait till you see for the outrage about oat milk…
Spruce Point Capital Management, a notorious activist short seller, went on the offensive against Oatly (Nasdaq: OTLY) today, claiming that Oatly has been misleading investors about its accounting practices and sustainability efforts, along with (allegedly) overstating the company’s margins and revenues.
Oatly fired back that the short seller’s claims were “false and misleading” because what else are you supposed to say? “LOL, guess you caught us! We’ll see you in court!” No. That’s never gonna happen.
I don’t know your own personal milk preferences (and why the heck should I know that), but I’ve seen enough ire over oat milk and Oatly even before this short report. The company’s already an easy target for shorts and naysayers to latch onto. It’s a recent IPO, so you get to posit that, ooh, ooh, you didn’t tell investors this one small detail! I’m secondhand outraged!
Plus, to quote literally every person I’ve heard talk about oat milk: “How do you even milk an oat? Hehehe…” Oatly is languishing at the bottom of the market’s cereal bowl today and making new all-time lows.
Gather ‘Round The Great Stuff
Thanks for tuning in once again, Great Ones! I hope you’re having a tremendous week so far.
By the way … if you were wondering about the results of last week’s poll on the summertime oil rally, look no further.
Roughly half of you are all in on that “freedom juice,” while another 28.8% of you fully expect OPEC to stop this oil rally in its tracks. Oh, and for the 21.2% of you avoiding oil for greener, cleaner-energy pastures … I salute y’all playing the long game.
Besides, it’s only a matter of time before the electric vehicle meteor kills off the rest of oil’s dinosaur-fueled fun. We’ll circle around to another new poll this time next week, capisce?
Of course, that doesn’t mean the Great Stuff action has to end here — au contraire! If you’ve yet to write in for Reader Feedback, there’s no better time than the present. (Actually, I quite enjoyed 1996 for various not-quite-publishable reasons, but that’s another story for another time.)
Give us a shout whenever the market muse calls to you! GreatStuffToday@BanyanHill.com is where you can reach us best.
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Until next time, stay Great!
