Why JPMorgan's earnings 'were good not great,' plus best jobs in the US

Market Catalyst - January 16, 2024 Summary

Key Concepts:

• CPI Report: Consumer Price Index – a measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
• Net Interest Income (NII): The difference between the revenue a bank earns from its interest-bearing assets and the expense it pays out on its interest-bearing liabilities.
• Tangible Book Value: A measure of a bank’s net worth, excluding goodwill and other intangible assets.
• XLE: Energy Select Sector SPDR Fund – an ETF tracking energy stocks within the S&P 500.
• Hyperscaler: A company with massive data centers and computing resources, typically providing cloud services (e.g., Amazon, Microsoft, Google).
• Max Campaigns (Reddit): A beta ad tool offered by Reddit.
• Full Self-Driving (FSD): Tesla’s advanced driver-assistance system aiming for full autonomy.
• ZEPPBOUND: Eli Lilly’s injectable medication for weight loss.
• R&D: Research and Development.
• BLS: Bureau of Labor Statistics.
• CDL: Commercial Driver’s License.
• SAP Consultant: A professional specializing in the implementation and customization of SAP software systems.

Market Overview & Economic Data

The US trading day was 30 minutes underway at the time of the broadcast. Market sentiment was mixed following the release of the CPI report, which came in milder than expected at the core level, initially boosting stocks but quickly fading as attention shifted to earnings reports.

• Dow Jones Industrial Average: Down approximately 300 points (0.6%),
• S&P 500: Down 0.1%.
• Nasdaq Composite: Relatively unchanged.
• Treasury Yields: Little changed, indicating limited investor expectation of near-term Federal Reserve policy shifts.
• Crude Oil Futures: Increased, surpassing $60 a barrel, driven by concerns about potential intervention in Iran and subsequent oil supply disruptions.
• Gold: Continued to rise, potentially as a safe-haven asset amid geopolitical uncertainty.

Within the S&P 500, the Energy sector (XLE) performed best, followed by Consumer Staples. Financials were down due to initial bank earnings reports.

1. JP Morgan Q4 Earnings Report

JP Morgan reported fourth-quarter earnings, with overall numbers beating estimates. However, the stock price fell 2.7% due to concerns about lower-than-expected revenue in its investment banking business.

• 2026 NII Guidance: JP Morgan anticipates annual net interest income of $103 billion in 2026, exceeding previous estimates. (Core NII guidance was not increased).
• Jamie Dimon (CEO) on DOJ Investigation: Dimon warned that eroding the independence of the Federal Reserve could lead to higher interest rates.
• Analyst Perspective (Saul Martinez, HSBC): Martinez, who has a reduced rating on JP Morgan, stated the market had already priced in much of the positive news. He characterized the results as “good, not great,” noting the stock’s high valuation (over three times tangible book value). He also suggested the bank’s guidance on net interest income was conservative, but the stock’s prior performance requires more significant positive news for further gains.
• Apple Card Deal: JP Morgan is taking over the Apple Card, incurring a $2.25 billion charge, with the transition taking two years. Martinez viewed this as a strategically sound move, rounding out JP Morgan’s card business and providing access to Apple’s customer base.
• Potential Rate Cap Impact: A 10% interest rate cap on credit cards would be “very sizable” and unprofitable for many lenders, particularly consumer finance companies. While JP Morgan is diversified enough to withstand it, Citygroup would be more significantly impacted, as cards represent 20-25% of its revenues.

2. Nvidia & Eli Lilly Partnership

Nvidia and Eli Lilly are collaborating to establish a $1 billion AI-powered drug discovery lab. This aims to accelerate the drug development process and potentially lower drug costs in the future.

• Focus Areas: The lab will focus on solving complex problems across Eli Lilly’s therapeutic areas, including small molecule and gene therapies.
• Lucas Montars (Eli Lilly CFO): Montars emphasized the partnership’s potential to speed up drug development and augment the work of scientists. He highlighted the potential for increased efficiency and the possibility of bringing more solutions to patients globally.
• Weight Loss Pill (Mounjaro/Zepbound): Eli Lilly expects potential FDA approval in the second quarter. Montars believes the oral pill will expand access to treatment, particularly in markets like China, India, and Brazil.
• AI & Cost Reduction: Montars suggested that AI could drive efficiencies in drug development over time, potentially lowering costs.

3. Best Jobs in America (2026) – Indeed Report

A new report from Indeed identified the best jobs in America for 2026, based on pay, demand, and remote work availability.

• Healthcare Dominance: 40% of the top 50 roles are in healthcare, particularly in mental health, rehabilitative care, and skilled nursing.
• Tech Roles: Some tech roles, particularly those related to AI (e.g., Data Scientist, SAP Consultant), remain in demand.
• Non-Degree Requirements: Approximately 20% of the roles on the list do not require a four-year college degree, including Owner-Operator/Truck Driver and certain medical technician positions.
• Community College Enrollment: Enrollment is increasing in community colleges and technical schools for healthcare and skilled trades programs, indicating a workforce response to these job opportunities.
• Laura Orich (Indeed Director of Economic Research): Orich noted a constrained labor supply in some sectors, particularly healthcare, contributing to strong demand.

4. Retail Sector Update

Early results from retailers during the holiday season were described as “mild.”

• Abercrombie & Fitch: Experienced a strong December but cut its outlook, leading to a stock decline.
• American Eagle: Reported an 8.5% increase in fourth-quarter comparable sales, but investors remained unimpressed.
• Lululemon: Beat expectations with preliminary results, but faces challenges from increased competition and a proxy fight with its founder.
• Value Retail: Value-oriented retailers like Five Below are performing well, reflecting consumer focus on affordability.
• David Silverman (Fitch Ratings): Silverman noted that despite moderate consumer sentiment, retail spending remains relatively strong, particularly among higher-income consumers.

Synthesis/Conclusion:

The market is navigating a complex landscape of economic data, earnings reports, and geopolitical uncertainty. While the CPI report provided a temporary boost, concerns about bank earnings and potential disruptions to oil supply are weighing on sentiment. The collaboration between Nvidia and Eli Lilly highlights the growing importance of AI in drug discovery, while the Indeed report underscores the continued demand for healthcare professionals and skilled trades. The retail sector remains resilient, but consumers are increasingly focused on value. Investors are closely monitoring these trends as they assess the outlook for 2026.