JPMorgan’s huge earnings beat | Apple’s event: iPhone12 with 5G

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The Top MarketBites Investment Stories for October 14th, 2020
WHAT IS DRIVING MARKETS TODAY?

Market Commentary –

– U.S. stocks fell on Tuesday after a four-day winning streak. Hopes for a near-term stimulus package faded as Democrats and Republicans remain divided.

– Investors also had to digest negative vaccine news. Eli Lilly said Tuesday afternoon that it would halt its trial of a coronavirus antibody treatment, news that followed Johnson & Johnson’s earlier announcement that it stopped its vaccine trial after an “adverse event” was reported.

– Earnings season is in full swing with Bank of America, Goldman Sachs, Wells Fargo, UnitedHealth, and Delta Airlines reporting today.

TOP STORY 1: Macro Indicators from JPM and C earnings

What is Happening?
JPMorgan posted a year over year increase in profits despite the negative effects of the COVID-19 recession. Loan defaults remained below the forecasted expectations; however, firm executives claim that we “are not out of the woods yet”.

Why does this Matter?
Financial earnings can tell quite a bit in terms of macro trends for the broader economy. $JPM and $C’s third-quarter earnings calls were no exception to this. Let’s dive in and see what these two firms could tell us about the broader health of the domestic economy.

Consumer spending is still down as credit card spending dropped 8% amongst $JPM customers and 10% on average with $C customers. As times become tough, it is common to see working-class Americans focus on improving their ‘personal balance sheet’. In general, as the potential for unemployment becomes more likely, consumers chip away at their debt and try to live more within their means.

In contrast, interest rates being driven lower has increased the demand for loans on big-ticket items such as auto loans. This could be a future cause for concern. Some consumers may see the large auto-loan debt as “cheap” due to the incredibly low rates. Should we enter a double-dip in the COVID-19 recession, unemployment numbers could rise well above current levels, and the 2021 forecasts of 7%. This would lead to an increase in auto-loan defaults.

In addition, $JPM and $C have highlighted a trend amongst financial stocks as we continue into the third-quarter earnings season. Market volatility has been a blessing in disguise as traders use their expertise to navigate tough waters. Investment bankers have been incredibly busy as firms attempt to ride out the downturn by selling shares, going public, and raising cash however they can. Expect other banks to show similar results in the coming weeks.

The Takeaway:
Although our banks are capable of holding larger reserves, are remaining profitable, and have fared well thus far during the COVID-19 induced downturn, there is reason to believe that the worst could still be ahead of us.

$JPM executives believe that unemployment will stay around 7% deep into 2021.  A well-planned stimulus package is a potential need for the American people and certainly is for various industries across the market. High levels of sustained unemployment spell trouble for loan-repayment and banks as a whole.


TOP STORY 2: iPhone 12 is here with 5G capabilities

What is Happening?
Apple debuted the new iPhone 12 today, the company’s first premier phone with 5G capabilities. Of the many new adjustments on the way for iPhone users, Apple will not include a charging block with the new phone, and the look best resembles older iPhone models.

Why does this Matter?

For Apple, this release is significant. iPhone sales growth peaked nearly a half-decade ago. Many analysts believe that the vast upgrade in camera capability, the price point accessibility for the Mini, and the introduction of an enhanced mobile experience with 5G will catalyze growth once again.

As for the greater market, this release will be highly anticipated for multiple reasons. For one, service providers are still in the process of building out the 5G network. In certain areas of the country, the 5G experience will likely be rather poor due to the lack of infrastructure. Will this turn off early adopters should they live in areas with suboptimal service? Will they turn against Apple or 5G in general?

The Takeaway:
The iPhone 12 has various models, including the largest iPhone ever, and the first version that is released as smaller than its iPhone generational predecessor. Analysts expect to see high growth due to the 5G experience. It will be important to monitor how 5G networks perform.


DEAL & IPO WATCH:

– McAfee IPO: The cybersecurity firm may garner a valuation up to $3.64 billion

– SoftBank Vision Fund 2 is backing a SPAC – (read here)

– Roblox IPO: The video game platform files confidentially to go public.


WHAT ELSE IS HAPPENING:
– WTO negotiations could hurt Boeing – (read here)
– Social Security benefits should rise in 2021 – (read here)
– Chinese exports surge due to medical equipment, WFH needs – (read here)
– Delta earnings offer a glimpse into struggling airline industry – (read here)

WHAT’S MOVING AFTER-HOURS:

US Foods Holding Corp. — $USFD is up 5.74% in after-hours trading. $USFD has started initiatives to be socially responsible moving forward.

Vertiv Holdings — $VRT is trading 4.92% above closing price in after-hours trading. Latest on $VRT and other hot industrial stocks.

Syneos Health Inc. — $SYNH has fallen 7.37% during the after-hours session. $SYNH recently reported their third-quarter earnings.


ABOUT MARKETBITES:
MarketBites is written daily by the investment staff of Taylor Hoffman Capital Management. Our investment professionals curate the most important stock market, businesses, and investment news in a format that anyone can understand and learn from.
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