“If Jamie Dimon says it’s bad, it’s bad.” – Jeff

 

Hey there carnivores,

Markets were up Tuesday. 

Today we’re talking about what big banks think the future has in store.

Keep raging,

Jeff & Jason

Stress test

Both JP Morgan and Wells Fargo reported earnings yesterday, announcing misses on profit for the first quarter. Well, duh. But the key takeaway is that both banks expect massive amounts of defaults and see a major economic downturn in our future. And so it begins

Shares of the banks fell 2.74% and 3.98%, respectively, after rising briefly earlier in the session.

No reservation

Both institutions saw profits fall off a cliff thanks to the coronavirus pandemic with JPM announcing a 70% decrease and Wells Fargo plummeting a whopping 89%. Profits of $2.87B and $653M, respectively, fell short analysts’ consensus.

The most alarming figure in each of the banks’ earnings reports, however, was the giant reserve provisions set aside for potential loan defaults. JPM put up $8.29B while Wells reserved $3.3B… compared to just $1.43B and $0.64B in Q4 of 2019. No word on if this accounts for defaults on WF’s fake loans.

What goes up, is really down

According to JPM’s Jamie Dimon, things could be worse than we thought. Fresh off of heart surgery, JD was dropping truth bombs during yesterday’s earnings call. He told the Street that unemployment could climb to as high as 20% and GDP could crater as much as 40%, compared to the 25% expected.

The bottom line…

Major indices rose on Tuesday despite the continuous deluge of hard to swallow economic data and dire warnings from two major US banks. So, what gives?

Well, it might have to do with some better than expected early earnings reports. You know the kind that fall into the “it’s not as bad as it could have been” category. 

And it appears that Wall Street just DGAF about much of the backwardslooking (mostly negative) economic data (read: 6.6M jobless claims), because the info is already “built in.” You see, investors have better things to focus on, like the Feds seemingly endless buffet of stimulus and cases of ‘rona leveling off.

Simply put, market participants see the light at the end of the tunnel. Unfortunately, the same can’t be said for the rest of the economy.

☑️ Don’t hate the player…

Amazon’s stock hit an all-time high yesterday, gaining more than 5% during trading and closing at nearly $2.3k per share. $AMZN has gained 38% since the first stay at home order was issued on March 13, as the company has seen a surge in demand by allowing customers to shop from the safety of their homes. 

In addition to its sales and stock price, the company has also had success in stifling uprisings. Two employees were fired after speaking out against the working conditions in its distribution centers. One, a user experience designer, was let go after tweeting that the conditions were unsafe and put employees at risk, although the company reported that the fired employees ‘repeatedly violated internal policies’… aka putting its employer on blast.

☑️ Just trying to stay in biz.

Some people just like to watch the world burn…

The Paycheck Protection Program was launched to help small businesses stay afloat and navigate these turbulent economic times. But it looks like certain companies may be taking advantage. Some hedge funds have submitted paperwork to get a portion of the $349B package… which would convert from loans to grants if the receiving company can retain or rehire its employees.

To make matters worse, the program is first come first serve, so mom and pop hair salons, grocers, etc. could miss out on funding because some money managers had the resources to submit and file their paperwork.

Will they get the dough? Who knows, but shooters shoot, I guess.  

☑️ This does not look good.

The International Monetary Fund (IMF) stated that we, the citizens of the world, might be making history this year… by falling into the worst recession since the Great Depression. The roaring 20;s are back, baby! Eclipsing the Great Recession of ’08, the global economy is forecasted to shrink by 3% in 2020, with the US’s GDP falling by 5.9%. Thanks, COVID.

Any good news? Well the IMF believes the US economy could rebound by 4.7% in 2021, so there’s that. The IMF also cautioned against reopening the economy too soon, citing longer-term negative impact for humans and the economy.

Sounds like the IMF is clearly not down to Die for the Dow.  

☑️ Lemme upgrade ya.

Tesla’s been on a tear lately. Shares rose as high as 14% yesterday after being upgraded to hold by Credit Suisse. Analyst Dan Levy wrote that the ‘rona was a catalyst for handing the electric-car company an edge over legacy automakers due to its ‘electronification’. Marcia Griffiths would be proud.

While the ‘rona caused Tesla’s stock to fall as much as 61% from its February record high, shares have since gained 60% in the past seven trading sessions. Is that good? Credit Suisse did project, however, that Tesla will likely fall short of its 500k unit annual forecast by about 100k. Do ventilators count? 

 

 

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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