foxex: The Long Way

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's Headlines

1. Markets Fizzle on Earnings and Trade Talks

2. What Bank Earnings are Telling Us

3. The Fed and the Consumer

4. Facebook's Libra Coin Launch at Risk

5. To the Moon!

Markets Closed

Dow
27,335.63 -0.09%

S&P
3,004.04 -0.34%

Nasdaq
8,222.80 -0.43%

VIX
12.8 +0.95%

Bitcoin
$9,721.31` -10.52%

US 10-Yr Yield
2.122 +1.434%

Markets Today

Markets slip from record highs on bank earnings and trade talks
Goldman Sachs, J.P. Morgan Chase, and Wells Fargo report earnings
Fed Chair Powell reiterates economic uncertainties and hints at potential rate cut

U.S. markets were mixed today as investors digested a raft of big bank earnings and news out of the White House that the trade talks with China have, "a long way to go." President Trump also reminded everyone that the U.S. can slap tariffs on an additional $325 billion worth of Chinese goods, "if we want."

So the U.S. China trade talks have a long way to go and they are among the top concerns for companies as they report their second quarter results.

Today we heard from some of the biggest global banks including Goldman Sachs, J.P. Morgan Chase, and Wells Fargo, among others.

The Common Themes

The common themes we are hearing from some of these big banks is that several of their traditional business models are under pressure, like investment banking, trading, and lending. To be sure, they are still making billions of dollars in these businesses, just less than they used to. The impact of the trade war and the uncertainty it brings, coupled with potential interest rate cuts later this year, makes this environment a particularly tricky one for banks to navigate.

Banks are particularly vulnerable to interest rate changes as they impact the margins they make in lending out money. For financial institutions, the metric we focus on is net interest income, which is defined as the difference between the revenue that is generated from a bank's assets and the expenses associated with paying its liabilities. A typical bank's assets consist of all forms of personal and commercial loans, mortgages, and securities. The liabilities are the customer deposits. The excess revenue that is generated from the interest earned on assets over the interest paid out on deposits is the net interest income.

This morning J.P. Morgan cut its forecast for 2019 net interest income—a main driver of bank profits—by $500 million to $57.5 billion, compared with the $58 billion target that the bank set last quarter. While that's not a huge cut, it's something to keep an eye on as the Fed considers lowering rates.

Read more: What is Net Interest Income?

The ETF XLF, which tracks the U.S. banking sector, is up about 17% year-to-date.

chart courtesy tradingview.com

Speaking of the Fed...

Fed Chair Jay Powell delivered a speech today in Paris where he reiterated that the Federal Reserve will, "act as appropriate," to keep the economic expansion going. He also noted a few key global concerns that are adding "uncertainty," to the economic outlook in the U.S. and abroad. Among them:

The approaching U.S. Federal Debt Ceiling (Yes... that's an issue about to resurface in a big way in the U.S... We'll explain more tomorrow)
A more prolonged shortfall in U.S. inflation (It's trending below the 2% range where the Fed likes it)
Brexit (Where do we start?)

The Fed is in the tricky position of implementing monetary policy among heavy crosscurrents in the U.S. and global economies. In the U.S., manufacturing and industrial production are slowing, but the consumer still feels relatively strong. We got yet another data point on that this morning from the U.S. Commerce Dept., which showed an increase in retail sales across most categories in June.

As we know, consumer spending accounts for 70% of GDP, so if consumers are confident and making purchases, it can help reignite the slumping manufacturing sector. Consumer spending is not the ultimate panacea for the overall economy, given that exports are a big part of U.S manufacturing and industrial production, but it certainly helps.

If the Fed cuts rates at its next meeting and things start to worsen, it may run out of monetary policy ammunition when it really needs it.

Here's the Commerce Department's chart on retail spending last month. Look at that jump in auto and truck sales!

Facebook's Libra Coin Under Pressure

Months from launch, politicians take aim
Facebook already in regulators' crosshairs
Other crypto tokens feel the pressure

The head of Facebook's Calibra cryptocurrency wallet, which the company is building for its 2.7 billion users to store its forthcoming Libra cryptocurrency, faced a feisty group of Senators in Washington D.C. today on the Senate Banking Committee. The Senators grilled David Marcus about Facebook's intentions and especially about how Facebook will use data from its users who transact with Libra for ad targeting and other invasive purposes. This comes just as reports are circulating about the $5 billion fine Facebook is facing from the Federal Trade Commission for privacy violations surrounding the Cambridge Analytica scandal leading up to the 2016 U.S. presidential elections.

Read more: What is Libra Coin?

chart courtesy tradingview.com

More News:

What Is the SECURE Act? How Could It Affect You?

Why the Biggest Asset Managers are Chasing Active ETFs

5 Things to Watch for in Earnings Reports That Will Define the Year

chart courtesy www.koyfin.com

Shares of J B Hunt, a trucking and transport company, rose by almost 6% percent today after the release of its 2Q earnings, which were expected to be much lower. The Charles Schwab Corporation's stock increased by over 3%, following reports that the stockbroker is in talks to buy USAA's wealth-management and brokerage operations.

Western Digital's stock decreased by nearly 6% after stock analysts at UBS raised the Micron Technology price target, citing Western Digital's cancellation of a join venture with Toshiba in their argument, which reflected badly on the computer hard disk manufacturer. Shares of First Republic Bank fell more than 4% today, following a Yahoo Finance report that its Q2 earnings and revenues failed to meet estimates.

Word of the Day

Legal Tender

Given the controversy around Libra and the price action in Bitcoin, it's important to note what both are not—legal tender.

Legal tender is any official medium of payment recognized by law that can be used to extinguish a public or private debt, or meet a financial obligation. The national currency is legal tender in practically every country. A creditor is obligated to accept legal tender toward repayment of a debt. Legal tender can only be issued by the national body that is authorized to do so, such as the U.S. Treasury in the United States and the Royal Canadian Mint in Canada.

In the United States, the recognized legal tender consists of U.S. dollars and coins issued by the Federal Reserve. A check, or a credit swipe, is therefore not legal tender; it merely represents a means by which the holder of the check can eventually receive legal tender for the debt.

photo courtesy Nasa.Gov

Today in History

July 16, 1969

At 9:32 a.m. EDT, Apollo 11, the first U.S. lunar landing mission, is launched from Cape Canaveral, Florida, on a historic journey to the surface of the moon. After traveling 240,000 miles in 76 hours, Apollo 11 entered into a lunar orbit on July 19.

The next day, at 1:46 p.m., the lunar module Eagle, manned by astronauts Neil Armstrong and Edwin "Buzz" Aldrin, separated from the command module, where a third astronaut, Michael Collins, remained. Two hours later, the Eagle began its descent to the lunar surface, and at 4:18 p.m. the craft touched down on the southwestern edge of the Sea of Tranquility. Armstrong immediately radioed to Mission Control in Houston a famous message, "The Eagle has landed." At 10:39 p.m., five hours ahead of the original schedule, Armstrong opened the hatch of the lunar module. Seventeen minutes later, at 10:56 p.m., Armstrong spoke the following words to millions listening at home: "That's one small step for man, one giant leap for mankind." A moment later, he stepped off the lunar module's ladder, becoming the first human to walk on the surface of the moon.

While this incredible moment in history has little or no direct investing angle, we are including it today given its historical and technological significance. We are all about "moonshots," here at Investopedia, and this is the ultimate example, in our opinion.