To The Moon

It was definitely a pleasant surprise to learn that US inflation has dipped to a “new” low of 5.0%, with the data released on Wed (12 Apr) morning, around 8:30am US time.

This result was even “better” than Wall street’s analysts forecast of 5.2%.

In summary, inflation has “fallen” by 0.1% from Feb 2023 to Mar 2023.

Will the “good” time lasts ? I bet that’s the question on everyone’s mind right after the data was released.

What Did Goldman Sachs Predict?

Accordingly, $Goldman Sachs(GS)$ has laid out 4 possible scenarios just before Mar CPI data was released.

Based on their prediction, S&P 500 should’ve rallied between 50 to 100 bps. By now, we all know how their predictions have panned out - don’t we ?

• It was one “big” Red Blob by the time market closed.

• No, the S&P 500 did not end up 50 to 100 bps higher.

• It fell by -16.99 bps instead. LOL !

The morale behind this story is that when it comes to pin pointing Market reactions / behaviour / sentiments (whatever terminology to be used)

• Even the “experts” could get it wrong sometimes or all the time.

• Does it mean that we need to read these “recommendations” with a cynical mindset ?

• No, it means we need to read any posts with our eyes wide opened; likewise for our minds as well.

Where do we go from here ?

Where Do We Go From Here - My Viewpoint ?

I tend to be the glass “half full” kinda investor.

Like it or not, I am really not that affected by yesterday’s market behaviour.

I like to believe that yesterday’s negative sentiments will blow-over as soon as the analysts or fund houses accept that the possibility of a 0.25% interest hike is a possibility in the following month and just move along.

Therefore my “undivided” attention has already strayed to what’s in store for Fri, 14 Apr 2023 when the “big” reveal will take place.

Banks quarterly reporting on 14 Apr 2023

I am referring to Q1 2023 Quarterly earnings by :

• $JPMorgan Chase(JPM)$

• $Citigroup(C)$

• $Wells Fargo(WFC)$

Yes, 1st quarterly earnings to kick off Corporate US reporting season for banks - of course !

How The 3 Banks Reporting Their Q1 2023 Earnings Will Fare - My Personal View.

Before diving into ranking proper, lets be transparent :

• This is only my personal view.

• It may not sit well with those who are shareholders or bullish about a particular bank stock.

• We must be able to agree to disagree ya.

• My analysis is based off the respective bank’s 2022 performances.

Saving the best for last, let’s start off with #3 ranked bank first…

(3) Wells Fargo Bank.

• Wells Fargo's 2022 EPS was $3.14, down -36.57% from 2021.

• Revenue came in at $73.79 Billion. Again, down -6% from $78.49 Billion (2021).

• The bank also suffered from (a) lower non-interest income, (b) lower loan balances and (c) higher operating losses related to litigation & regulatory matters.

• The crimes committed led to the bank’s provision for a $1.7 Billion civil penalty and $2 Billion in restitution for 16 million consumers ordered by the Consumer Financial Protection Bureau. The sweeping order covered illegal fees and mishandling of auto loans, failures to grant mortgage modifications, and surprise overdraft fees on checking accounts.

• With hard hitting headwinds coming at it from all directions (and higher interest rates); its averaged out net interest margin was 2.63% (2022) versus 2.053% (2021).

• Last but not least, Wells Fargo's common equity tier 1 ratio was 11.5% as of 31 Dec 2022.

Wells Fargo - past 1 year stock price movement

(2) JP Morgan Bank

• JP Morgan's 2022 EPS (adjusted) was $12.09 vs $15.36 (2021), down -21.3% from 2021.

• Its revenue was $65.1 Billion, down -10.33% from $72.6 Billion (2021).

• It registered a mixed bag of performances. Strong growth was registered in the following parameters - (a) Net interest income, (b) Asset & Wealth management, (c) Commercial banking segments.

• At the same time, stagnant or depressing growth (not surprising ya !) have been reported in its (d) Investment banking and (e) Market and Consumer and Community banking segments.

• In Q4 2022, the bank has also increased its credit reserves by a whooping $808 Million; a possible “giveaway” of higher credit risk amid rising interest rate and inflation ?

• Last but not least, JP Morgan's common equity tier 1 ratio was 12.2% as of 31 Dec 2022.

JP Morgan - past 1 year stock price movement

(1) Citibank Bank N.A.

• Citibank is most likely to report the “best” results

• Based on facts that its adjusted earnings per share (EPS) for 2022 was $1.16. Its down -20.55% from $1.46 (2021).

• Its Revenue was $17.78 Billion, up +4.47% from $17.01 Billion (2021).

• Citibank benefited from strong growth in its (a) Consumer Banking and (b) Institutional Clients segments.

• Other benefits reaped included (i) lower credit costs and (ii) higher net interest income.

• Lastly, Citibank also maintained a healthy capital position, with a common equity tier 1 ratio of 13.0% as of 31 Dec 2022; just shy of the 13.3% threshold revised in Oct 2022..

Citibank - past 1 year stock price movement

This Is How I See It

• In terms of performances, looks like Citibank has the “best” chance of reporting a good set of data; followed by JP Morgan and finally Wells Fargo.

• If the banks report good results, will it cause a stampede in the market ? Possibly.

• Conversely the opposite could also occur should the quarterly results presented are flat or worse negative. They would drag the market down along with their stock prices.

• Coming back to the age-old question, are we investing for the long haul or are we in just for the joyride while the good time lasts ?

• When we are able to find that truth within, we will know what to do before and after the quarterly results are out.

• Do you think you will “agree” to my ranking of the 3 US banks ? If not, how will you rank them differently ?

• Do you think you will take a leap of “self-faith” and take a stake in US bank stock ?

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