Stocks once again hit fresh all-time highs, boosted by strong quarterly reports from some of the nation's biggest banks and economic data suggesting the economy remains on a glide path for a soft landing. Although Friday's gains were broad-based, one Magnificent 7 stock had a very bad day.
Market participants were finally able to take their eyes off macro on Friday and instead focus on corporate profits. Happily, they liked what they saw when JPMorgan Chase (JPM) and Wells Fargo (WFC) unofficially kicked off third-quarter earnings season with better-than-expected results.
"Stock investors looking for good news today have plenty of options," wrote the markets team at Argus Research. "Banks earnings are generally coming in better than expected. Economic data released today suggested ongoing progress is being made on taming inflation. And just for fun, JPMorgan tied its solid earnings report in part to the likelihood that an economic 'soft landing' will indeed be achieved."
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Big banks in focus
JPMorgan Chase, a Buy-rated Dow Jones stock, rose 4.4% after the nation's biggest bank by assets posted a better-than-expected increase in net interest income (NII) and lifted its forecast for the critical revenue stream.
Net interest income is the difference between what banks pay for deposits and charge for loans. Bank investors are keying on NII these days because lower interest rates make the revenue stream less profitable.
"JPM's results included 3% year-over-year growth in net interest income and 12% higher noninterest income, aided by a rebound in investment banking," writes Argus Research analyst Stephen Biggar, who rates the stock at Buy. The analyst singles out JPM among large banks "given its better lending-growth profile, strong credit-card franchise, and expected market-share gains in its capital-markets businesses."
Meanwhile, Wells Fargo stock popped 5.6% after the lender reported better-than-expected earnings despite suffering a significant drop in NII.
“Our earnings profile is very different than it was five years ago as we have been making strategic investments in many of our businesses and de-emphasizing or selling others," CEO Charles Scharf said in a statement. "Our revenue sources are more diverse and fee-based revenue grew 16% during the first nine months of the year, largely offsetting net interest income headwinds."
Although NII contracted 11% vs the year-ago period, CFRA Research analyst Alexander Yokum maintained his Buy recommendation on the stock. "With interest rate cuts likely to continue into 2025, we view WFC as a key beneficiary given the bank's outsized exposure to struggling commercial real estate (16% of total loans), which we expect to benefit as client debt service ratios fall," Yokum wrote in a client note.
Benign econ news
Traders also digested readings on wholesale inflation and consumer sentiment on Friday, neither of which appeared to disturb current market expectations. Indeed, José Torres, senior economist at InterActive Brokers, characterized the econ news as "benign."
The Producer Price Index (PPI) was flat in September and down by 0.2% from the prior month. That was better than economists' forecast for a 0.1% gain. Core PPI, which excludes volatile food and energy, rose 0.2%. That represented a deceleration from the prior month and was in line with estimates.
At the same time, although consumer sentiment retreated last month, it did so from a recent peak, Torres notes. "After climbing in September to its highest level since the spring, the University of Michigan Survey of Consumer Sentiment weakened this month, with respondents citing persistently higher prices and uncertainty about the upcoming presidential election as headwinds to optimism," the economist writes.
At the closing bell, the blue-chip Dow Jones Industrial Average was up 1% at 42,863, while the broader S&P 500 added 0.6% to 5,815. The tech-heavy Nasdaq Composite gained 0.3% to 18,342.
Robotaxi mows down Tesla stock
Tesla (TSLA) stock tumbled 8.8% after the market gave a thumbs down to the electric vehicle (EV) manufacturer's highly hyped debut of its robotaxi. CEO Elon Musk showed off prototypes of several vehicles at a press event Thursday night, including a Cybercab that he said could cost less than $30,000 and will "probably” go into production in 2026.
The company, which has a history of missing deadlines, was criticized for failing to address how Tesla will catch up with competitors in offering fully autonomous vehicles. Market participants were also disappointed with the lack of information surrounding the prototype, including technical details and regulatory issues.
The bottom line is that TSLA, always a highly volatile stock, shed $68 billion in market cap on Friday, or more than the entire market value of FedEx (FDX). Wall Street remains cautious on the name, assigning TSLA stock a consensus recommendation of Hold, according to S&P Global Market Intelligence.
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