US markets notch best week since November

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

US equities ended the day and week higher on Friday, as markets reacted to a host of results from the banking sector to kick off Q4 earnings season.  Bank of America, Wells Fargo, and JPMorgan Chase all bested estimates, but each posted significant increases in provisions for loan losses, while Citigroup fell short of forecasts.  Meanwhile, UnitedHealth Group beat forecasts and reaffirmed its guidance.  The Dow Jones Industrial Average rose 0.3% to 34,303, the S&P 500 Index increased by 0.4% to 3,999, and the Nasdaq Composite advanced 0.7% to 11,079.  Markets ended higher for the week, as the DJIA gained 2.0%, the S&P 500 climbed 2.7%, and the Nasdaq Composite soared 4.8%.  European equities also finished the week higher, with the Euro Stoxx 50 up 0.6% on Friday and 3.1% for the week. 

Summary as at 16.01.2023 

• Asian equity markets mostly rose on Monday, as shares in Australia, South Korea, Hong Kong, and mainland China all advanced.  Meanwhile, Japanese equities fell due to a strong yen that dimmed the outlook for exporters and expectations for another policy adjustment from the Bank of Japan. 
• Oil prices were also higher this morning as investors weighed an improving demand outlook in China against the prospect of an economic slowdown in other major economies.  Oil prices rallied more than 8% last week as China’s reopening from Covid curbs raised hopes for a boost in economic activity and mobility, with analysts forecasting oil demand in China will likely hit a record this year. 

• European equities are set to follow global markets higher as US markets will remain closed today in observance of Martin Luther King Jr. Day. 
• China said on Saturday nearly 60,000 people with Covid-19 had died in hospital since it abandoned its zero-Covid policy last month, a huge increase from previously reported figures that follows global criticism of the country’s coronavirus data. 
• The preliminary University of Michigan Consumer Sentiment Index for January showed that sentiment increased more than expected in the US, jumping to 64.6 from December’s final reading of 59.7, and well above the consensus estimate calling for an increase to 60.5. Both the current conditions portion of the index and the expectations component of the report rose solidly. The 1-year inflation forecast declined to 4.0% from 4.4% in December. 
• JPMorgan Chase & Co reported Q4 adjusted EPS of $3.57 on Friday, ahead of Street’s estimate for $3.08, as revenues jumped 18.1% year-over-year (yoy) to $34.55 billion, mostly in line with analysts’ forecasts.  Consumer and commercial banking revenues gained solid ground, posting respective yoy increases of 29.1% and 30.3%, more than offsetting a 9% yoy decline in investment banking.  The Bank also declared a $2.3 billion provision for credit losses for expected defaults, a 49% increase from last quarter. 
• Bank of America Corp. posted adjusted Q4 EPS of $0.85, eclipsing the $0.77 estimates, with revenues rising 11.2% yoy to $24.53 billion, slightly north of the Street’s forecast of $24.17 billion. Consumer banking revenues jumped 21% yoy, with net income hitting a record $3.6 billion, citing an increase in net interest income to $14.7 billion. The Bank said net interest income rose 29% yoy to $14.7 billion amid the rise in interest rates, slightly below the Street’s expectations, but helping to offset a 50% decline in investment banking fees of $1.1 billion. The bank also implemented $1.1 billion for credit losses, up $1.6 billion from a year ago, despite net charge-offs remaining below pre-pandemic levels. 

• Citigroup Inc. reported Q4 adjusted EPS of $1.10, falling short of the Street’s $1.14 estimate, and a 21% tumble from the same quarter a year ago. Revenues rose 5.8% yoy to $18.01 billion, a shade higher than the $17.90 billion that the Street was forecasting. Net interest income for the period was $13.7 billion, above expectations and helping to offset a sharp decline in investment banking revenues, while proceeds from its services segment were up 32%.  
• Wells Fargo & Company posted an adjusted profit of $0.67 per share, slightly ahead of the $0.60 FactSet estimate, as revenues declined 5.7% yoy to $19.66 billion, short of analysts’ estimates of $19.98 billion. The company said its results reflect a $2.8 billion, or $0.70 per share, loss as a result of the impact of legal and regulatory costs. The Bank said it set aside $957 million during the quarter for credit losses after reducing such provisions last quarter, with $397 million of that increase for the allowance reflecting a shortfall in loan growth and an unfavourable economic environment.  
• United Health Group In. reported Q4 EPS of $5.34 ex-items, above the $5.17 estimate, on a 12.3% yoy increase in revenues to $82.79 billion, slightly higher than the $82.48 billion estimate. The healthcare giant said that for the full-year revenues rose 13% yoy with double-digit growth in both its Optum and UnitedHealthcare segments. As such, the company reaffirmed its full-year 2023 EPS and revenue guidance.