It feels like there is only enough attention span for one area of the market. The market to broaden out if there is more resilience outside the tech sector. We should have a positive earnings season.
This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz, and Annmarie Hordern.
Live from New York City this morning. Good morning, good morning. Bloomberg Surveillance starts now. Coming into Tuesday, tech adding to losses, pulling back from all-time highs as Chinese competition is sparking a global row in chipmakers. Looking for quarterly earnings on Wall Street. JPMorgan and Jamie Dimon kicking things off.
Jamie Dimon sets the tone when it comes to bank earnings, and he will be kicking it off this morning. She said what makes her more conservative, she said, yes, it has been the tone of Jamie Dimon in recent interviews. We saw what happened to the bank stocks. They are dealing with the 10-year Treasury yield.
Around 6:45 is what we are anticipating, 6:45 Eastern, JPMorgan releases earnings. 7:30 Goldman Sachs. After that, Citi around 8:00. Record high for bank stocks in August. We follow that with a 10% pullback for the banks. S&P 500, pick your poison as to why. Conservative guidance from, including Brian Moynihan at Bank of America, tech disruption from AI agents, or a row in the global bond market. Which one is it? There is a long list of reasons laying on these bank stocks.
They say you can track this to when we saw long-end yields. If that is one of the biggest issues, biggest poisons hitting the bank stocks. At the same time, that's why this earnings is going to be so much more important. We want to hear what these bank CEOs have to say when it comes to AI, when it comes to long-term borrowing rates coming up ahead of the midterm elections. How are they thinking potentially about a Democratic sweep? We could see more of a push from some lawmakers who want more tightened-up regulations? It is going to be interesting at a time when this is going to set the tone. People are starting to wonder just a little bit about the AI trade. Is it a casino or not?
You mentioned the bond market and AI trade. Yields pulling back, reopening of the Treasury market following a day off yesterday for Columbus Day, down by five basis points on 10s, around 4.76 so far this morning. A bit of a defensive posture to the market, largely off the back of what's happening in tech. Annmarie mentioned the chip trade, stocks have been hammered, down 16% from the highs of the year, are down again this morning, particularly SK Hynix and Samsung in Korea.
When you have this Chinese rival making progress on a memory development that Samsung and SK Hynix are also working on, this begs to have you wonder potentially we will have a lot more chips coming on the market. At the same time, especially in the geopolitical case, everyone always says China is at least three to six months behind the United States. In this instance, are they actually catching up to some of the U.S. allies and peers when it comes to this trade?
Equity futures on the S&P 500 just about turning positive. This hour, catching up with Julian Emanuel of Evercore. Colonel Sanders as President Trump blasts Houthi behavior. Holding stocks back ahead of key earnings. Writing financials will set the tone, having been poor performers in September. How the stocks react is as important as the report and the guide they give. Good morning. Let's start with a decline. A 10% correction from the highs of August. I went through a long list of reasons of why we've seen a bit of weakness in that group of names. What would you point to as the main reason holding them back?
It is all of the above, no question. Once investors got the script that rising yields, which typically is better for financials all else equal, was not, all those other worries that were embedded came to the fore. Here we are. It isn't often we say that financials are likely to set the tone for the entire earnings season, but everyone is hanging on Jamie Dimon's commentary. The good thing is, in a lot of ways, the price action has the risk things to a certain extent, and as you pointed out a few moments ago, his tone has skewed more conservatively, so that is embedded in.
Morgan Stanley and Goldman for much of the year have been fantastic proxies for the capital markets boom and the race to raise capital to fuel the AI buildout. Are they still a good proxy, the group of names, for the tech trade?
No question, but we have to face facts. Capital markets have been a disappointment in September, and that is another one of the multiple reasons why the financials... And again, recognizing the fact that, yes, there is a difference in this bull market, which turns four years old this morning, that typically you want to see financials be outperformers in the healthiest of bull markets, but again, the AI trade has been so dominant that tech has been the dominant outperformer.
Four years, 120% gain, up and to the right. The people who stuck with that have performed remarkably well. The people who worried — there were enough reasons to worry the last four years — they sat on the sidelines and missed a lot of that. What is your advice to people worried about the bond market, 2027, and the prospect the market slows down?
We focus on credit. Two things. The idea that hyperscalers' debt issuance is price insensitive — let's say malarkey. That old 20th-century word, maybe. That is the kind of thinking that got people all in on tech in March of 2000. But at the same time, what we see from the credit markets, despite these concerns and have certainly spilled over into financials throughout the year along those lines, is the credit markets remain very well behaved. Until that linkage breaks, and we don't know what form that's going to take or set of economic conditions — the economy is very strong, as we know — I think we stay the course. When you look at structural technology-led bull markets, tech tends to lead until the very last minute. We think it's not different this time.
What do you think the red line is? Do you have a range to think about?
Look, the work that we did in the summer showed that four and three quarters on the 10-year was a ceiling point, and we saw that in situational awareness, into the sloppiness in September as yields started spiking. Again, as we all know, this is part of a global picture, and I think part of the subtext as we are looking at the screen this morning is France and Europe trade a little better.
5.90 on 10s. Fund manager survey from Bank of America, 5.90 on 10s is the yield required for investors to flip from stocks to bonds. 5.90. 70 basis points from where we are now.
I'm not so sure it's going to wait that long. I think if we look at it, 5.37 on 10s last week, and we backed off pretty significantly. My suspicion is if we go on too much beyond that point, particularly if we see the economic data start to slow for any reason, we have to be aware. Again, in our mind, the credit markets will be and tend to be the arbiter.
Are you in the 14% that say it's...
Overweight tech, the highest proportion of investors overweight tech since August of 2020. AI bubble now consensus. The most underweight the consumer since July 2008. That is quite a stack. The most underweight the consumer and American since July 2008.
It is. To be clear, and you know we have been proponents of the overweight tech for three years now, and we are not getting off for the reasons I delineated earlier. But the fact is, if you're thinking about hedges for technology in an environment where people are underweight the consumer, and all you need — you don't necessarily need oil prices falling drastically, you don't need yields falling drastically, you just need a moderation.
Right. Those are places not only are they underweight, but they are large, embedded short positions based on the terrible...
That story is why I can feel the itch going into outlook season with just a few weeks away. The itch for people to write the story of 2027. Our call is for breadth, rotation, we think equities go higher, but beneath the surface we are seeing the rotation to other things. Do you feel the itch, too?
This year there has been various times you had it. Through the summer, part of the beauty of July is our basket, which we call negative beta, things inversely correlated to the AI trade, really, really worked and held indices in. Then you get to September and it all went kaput with AI and tech being the only things that rallied. I think it will oscillate around essentially what the macro is telling us.
Has it ever been this hard to put out a one-year outlook?
We aren't doing it until after November 3. You would be crazy to do otherwise.
Because there is a lot — our expectation is you are going to see volatility in and through the midterms. Frankly, I think depending on the outcome, a lot could be a function of what the reaction function is for each side of the aisle.
A lot of the policy volatility hasn't come from what Congress has done, like the one big beautiful bill. It has come from executive action. Isn't that going to be the dance for the remainder of this presidency?
To be fair, there have been times, maybe infrequent, but there have been times when we've gotten things done on a bipartisan basis. If you're thinking about legacy, maybe the last two years, if you have to deal with a Democrat-held Congress, is to work with the Democrats.
You're not the only one that mentioned maybe the president works with the Democrats to get things done. What does that look like?
I think it depends on the policy. This president has also worked with Democrats. Do you remember when he called Elizabeth Warren when he was worried about inflation? He lines up sometimes with Senator Sanders when it comes to AI policy. I asked him, admitting that kind of lineup together.
Setting the scene for 2028 in a big way. That's going to be the jump. We are going to jump from November 2026 to November 2028 just like that in a few weeks' time.
My question is, is this volatility before the midterms a clearing event, or do we get more volatility after? Because the president may restart strikes when it comes to Iran.
Julian Emanuel of Evercore as bank earnings coming later this hour, looking at JPMorgan in about 30 minutes. Futures on the S&P just about positive by 0.1% on the S&P 500. With an update on news worldwide, Vonnie.
UnitedHealth Group raising its price target for the year, signaling a turnaround after a difficult 2025. The U.S. health care conglomerate reporting better-than-expected results, and medical expenses consumed a smaller share of premium revenue than expected. U.S. regulators ramping up scrutiny on how banks are using advanced AI models. Reuters reporting three top watchdogs are looking into firms using Chinese-developed technology, questioning if banks can clearly track and audit AI agents. Big bank earnings kicking off this morning with results from JPMorgan and Wells Fargo this hour. Governor Waller addressing the AI buildout at the New Economy Forum, saying the technology will not create long-term inflationary risks.
We're starting to see AI having a spreading out of inflation because it's increasing demand for everything else. Down the road, when this stuff is done and that kind of buildout, that kind of demand pressure goes away, and then you hopefully will start seeing all the supply effects.
While others are saying the U.S. is the dominant country in building AI models, and the technology could significantly widen GDP per capita. You can watch all the interviews on LIVE<GO> on your terminal and on Bloomberg.com.
Always great to listen to Governor Waller saying high yields are doing a little bit of the work for us at the moment. Not getting high yields this morning. 10-year yields down 5.19 this morning.
Does this at all tie to what he said about the Fed having flexibility? If they are doing a little bit of the work, maybe they can take a pause in October and wait until December.
The door is slightly closed for a move in October. President Trump announcing Houthi hostility.
They are misbehaving very badly. No good. As soon as the war ends, which will be very soon with Iran, the oil will drop like a rock. And it's going to end very soon.
We will catch up with Colonel Wayne Sanders of Bloomberg Intelligence. Live from New York City, good morning, good morning.
Bank earnings coming out this morning, kicking things off with JPMorgan, looking for Jamie Dimon in 20 minutes. 30 minutes you will hear from Goldman. You will hear from Citigroup around 8:30. Bank of America and Morgan Stanley and more still to come through this week. This goes into equity futures on the S&P 500 just about positive, treading water. The Nasdaq, struggling a bit, down by 0.5% on the Nasdaq 100. Chip stocks being hammered worldwide. Competition from China is the focus here. More later this hour. Bond market, yields falling back. The cash bond market reopening stateside. The 10-year. President Trump announcing Houthi hostility.
They are misbehaving very, very badly, no good. As soon as the war ends, which will be soon with Iran, the oil will drop like a rock. It's going to end very soon.
The latest this morning, President Donald Trump issuing a warning to the Houthis as the militants ramp up attacks on Saudi Arabia, the U.S. offering read-in intelligence support, something short of direct military involvement going into the midterms. Tyler Kendall has the latest.
People familiar with the matter say Riyadh is desperately looking to the U.S. and European allies for further support, having grown frustrated with the limited assistance, as you mentioned. So far, the U.S. has opted against direct involvement but has provided intelligence sharing and help with aerial refueling. Our reporting indicates one possible option floated by the Saudis would be for the U.S. to provide air cover around the Bab al-Mandab Strait, as it appears Saudi air defenses may be one of the biggest vulnerabilities at the moment. The latest attacks overnight signaled the conflict is far from over, as this weekend's death toll approaches at least 18 victims with more than 300 wounded. President Trump confirmed that he spoke with the Saudi crown prince. As we get closer to Election Day, the issue remains that the U.S. is wary about getting involved in another conflict. If the U.S. gets involved, particularly near the Red Sea, that could affect an existing cease-fire between the U.S. and the Houthis, as the Houthis, as of now, have only been attacking Saudi-flagged ships. We should say that there are limited U.S.-flagged ships sailing through the Bab al-Mandab Strait. At this time, the White House doesn't want to risk anything that could further contribute to supply disruption.
Tyler Kendall with the latest from the nation's capital. Colonel Wayne Sanders joins us. The disruption from the Houthi militants we've seen for many years, this is the first time using the target civilian infrastructure in Riyadh, in Saudi Arabia, with such damaging, damaging effects. Why is it so difficult to contain this group of militants? Why are we finding it so hard?
I think one of the biggest reasons that people don't quite understand is the size of the Houthis. You have 20,000 militant supporters as well as 350,000 fighters. When you look at how they are spread out, they can actually disburse quite easily, but they have quite a bit of military firepower based off of Iranian backing and funding as well. When you look at the capabilities that the Houthis have, it's almost as if it is a conventional military force, but it's more difficult to strike. You see that even in Saudi Arabia's offensive actions towards Yemen to work with the Yemeni government to go after the Houthi population.
For us to read what the president is saying, what should we look for as a force posture in the region, first, if he were to reengage with the Iranians directly with the Strait of Hormuz or the Houthis?
If you look at the Teddy Roosevelt, the third carrier strike group heading there, at least probably getting there October 25, right now the biggest thing tied to that is you are actually allowing for the president to have additional options. He has military options at that point in time because you have three strike groups in that area to be able to cover both the Red Sea area and the Strait of Hormuz for any type of military action that would potentially need to take place at that time. The options are going to be there. I think one of the key things people will be looking for is if the USS George Washington would head back home after that and leave two, or if they will keep carriers there to provide additional support for air cover if necessary in the Red Sea while still being able to provide the blockade support you are seeing in the Strait of Hormuz.
What would it take for the United States to get involved now when it comes to the Houthis?
I think continued pressure against the civilian infrastructure, like the Riyadh airport, is one of the key things that could potentially pull the U.S. in, especially with the Saudis being a strong ally to the U.S. in a lot of ways. A strong component, especially looking at being able to provide support to the rest of the Gulf states. Saudi is one of the key pieces as well as the UAE. When you're looking at the deep political ties, Saudi plays an important role. If they went after any U.S. flagships, and as the Houthis mentioned when they threatened, if they strike a U.S. military base, you may see more flights.
Give a sense of how much China and Russia are aiding Iran.
I think there is an underlying understanding there is quite a bit of intelligence and targeting support provided by Russia and China to Iran. It's similar. That's one of the things that isn't a really big surprise to anyone in the intelligence community or within the military. Those are the kinds of things you kind of expected to happen because a lot of it is digital, a lot of information sharing in that perspective. The key pieces following the supply lines, trying to identify if there is a large shipment of specific types of capabilities. What you are not seeing is HQ-9 air defense systems or S-400s on trucks making their way in for additional air support or some hypersonic. The intelligence community and U.S. CENTCOM are going to follow these supply lines to see if he creates any threshold, and these are the areas that could be struck if the U.S. enters back in.
What about satellite imagery and help in order for Iran to hit American or Gulf allies' targets?
It's one of the things that probably provides and amplifies most of the targeting capabilities you see in non-peer capabilities now. You have so much even commercial imagery out there or satellite imagery that is incredibly powerful from nation-states being provided. Those do provide the ability for these systems to target. You still have to be able to hold on, lock that capability in, and range the military, whether you are looking at the destroyers or if you are trying to hit an airfield. All of those things require persistent capability and aim-point capability on seekers that can reach the target.
Appreciate your time, Colonel Wayne Sanders of Bloomberg Intelligence. The president obviously looking to get into a more manageable phase of the conflict in the Middle East. It is looking less manageable as the days go on, particularly for the Saudis.
Saudi Arabia at the moment for their economic development — at the end of the month they will have a huge event, the FII. That usually brings together global business executives, and it's about them diversifying away from oil and gas. The World Petroleum Congress, a lot of executives decided they had no choice but to stay home because the Houthis are continuously stepping up attacks. It's coming in a difficult time for the kingdom.
104.60 on Brent. We will catch up with Gerard Cassidy with big bank earnings moments away. Plus Yahira has your morning movers. Chip stocks under pressure from Chinese competition.
From Bank of America this morning, investors bullish into the midterms, looking for no Fed hikes in October, a booming Q3 earnings season. We are looking for that boom. We will get earnings for you in a moment. Equity futures on the S&P about unchanged. We will get into the Nasdaq in a moment. Chip stocks hammered worldwide in the last 24 hours. The bond market, cash Treasuries reopening, state yields lower by four or five basis points on 10s. The front end down another two basis points, 4.76. Governor Chris Waller speaking to the Bloomberg New Economy Forum in India, making a case that the bond market might be doing some of the work for them at the moment. Either way, we have dialed down the odds for a rate hike in October big time. Two more stops to go. CPI in about 24 hours, and then you will hear from Governor Warsh, now Chairman Warsh at the Federal Reserve, governor a long time ago. That is the bond market situation. Three hours until the opening bell, cash open around the corner. Single names and morning movers.
We are seeing the memory trade faltering, as you said, with the Philadelphia Semiconductor Index down again after four straight sessions of losses, its longest losing streak since July. The concerns we talked about yesterday are still weighing on the sector today. As you said, China said yesterday it is making progress on a chip that can hold more memory. Now you have Elon Musk weighing in, adding fuel to those concerns. He says once China figures out how to make a product, it can often scale production beyond the rest of the world combined. Not mincing words when it comes to the threat. Meanwhile, we are seeing Bumble shares up 1.3%. They were up nearly 50% yesterday as The Wall Street Journal reports that it is in advanced talks to take the dating app private for around a billion, with the deal that could come as soon as this week. We end on UnitedHealth shares up 1.3%. Just reported earnings were a beat and a raise, lifting profit outlook for the third time this year as medical bills ate up less of its insurance income than in the past.
JPMorgan and Jamie Dimon just reporting, third-quarter trading revenue coming at $5.37 billion. The estimate was $6 billion, so that is a downside surprise. Equity sales and trading revenue coming at $4.95 billion, the estimate was $4.47 billion, so that is an upside surprise on that particular figure. The rest of the numbers, each line of the business performed well according to Jamie Dimon himself. We will get to a breakdown of these figures and more. Hey, Christine.
Some disappointment, obviously, with JPMorgan, as you say. We are seeing trading coming in well below estimates. $5.37 billion for the third-quarter fixed sales and trading revenue versus an estimate of $6 billion. That was very much factoring into the thick activity we are seeing from investment banks, starting with JPMorgan. The equities are still very much the bright spot. $4.95 billion in terms of trading revenue, well exceeding expectations of $4.47 billion. Jamie Dimon, at least in the first lines from him, sounds confident, each line of business performing well. He's also talking about growth, particularly in the card business, continuing to be robust. Jamie Dimon talking about reducing share purchases this quarter. We will hear more when we get the calls. It looks like equities still very much the bright spot here for JPMorgan, and very much the expectation here, even though we've seen a little paring in terms of equity exuberance in the markets and a lot of gyrations in bond markets, very much a scene in the results here with the slightly weaker-than-expected trading and sales revenue.
You can get a second look at the numbers, and we will come back to you. Mixed results from that company. I will go through line by line. Fixed trading revenue $5.37 billion, and the estimate was $6 billion. Investment banking revenue softer than expected, $3.1 billion, and the estimate was $3.17 billion. Equity sales and trading revenue shy of $5 billion, $4.95 billion. The estimate was $4.47 billion. Conservative, somewhat cautious guide from Jamie Dimon. Overall, pointing to the same old geopolitical conditions shifting under the surface. Another line is reduced share repurchases this quarter. A lot of the stuff is weighing on the stock so far this morning.
It is a mixed bag, but I think weighing mostly on the stock this morning is fixed sales and trading revenue, the market looking for $6 billion, coming shy of that. At the same time, UBS was saying he sets the tone, and he is setting the tone this morning very cautious, especially with comments on geopolitics, which makes sense. The world is dealing with higher rates and two hot wars.
Gerard Cassidy of RBC is still confident on this group, remaining positive on bank stocks over the next 12 months. We continue to see healthy loan growth and a positive yield curve. Not a tremendous start from JPMorgan.
You said it well that the trading area was softer than expected. Equity trading, as you know, has been strong throughout the year, but JPMorgan, as we know, is a very diversified company. It is the banking businesses that are going to — traditional banking businesses, I think, will be the shining star for not only JPMorgan but others, driven by the demand for commercial loans. This quarter, in terms of capital markets, we knew it was going to be softer than the second quarter, but it is still up year over year. We are still ahead of the game. Even though it is a slight miss on the fixed side, investment banking, the numbers in this specific line of business are a little softer, especially compared to the second quarter.
How well-priced do you think we are for the numbers we are about to see? Down 10% from the highs of August? The uneven performance is pretty striking. JPMorgan down a percent since August, but check out Goldman, down more than 20% since July. How well-priced do you think we are for the hiccup in capital markets you expect to see?
It's a good question because the market has certainly discounted some of these numbers, as you identified with the Goldman Sachs performance. We have to remember that these companies have had great moves over the last 18 months, and there is obviously some profit-taking because of the strength of the second quarter. We all knew that was not going to be repeated. That is certainly the case so far today. I think it has been discounted. What's going to be key is on the earnings calls the commentary about pipelines and what the outlook is for these lines of businesses, particularly for Goldman Sachs and Morgan Stanley, who, of course, are big investment banks and that is their primary business. JPMorgan, Bank of America, and Citigroup are more diversified.
The pipeline question is important for a number of reasons. Not just this stock, but others, Goldman and Morgan Stanley, have been almost proxies for the buildout. I've asked the question repeatedly in the last few weeks if you still believe that group of names is a decent proxy for that theme. Do you think it is?
I think it is. When you look at it, I think you are absolutely right in looking at it that way. Boy, the capex buildout is very strong in this country, as we know, due to the AI revolution we are experiencing. It is expected to continue well into 2027. Jon, what we're looking at is also the second derivatives. What I mean is the demand for commercial loans for the companies that are benefiting from this buildout. That is also likely to show this quarter as well.
What do you expect to see from Goldman in about 45 minutes, given what we've seen from JPMorgan?
It's interesting because Goldman at a recent conference indicated the equity trading numbers were real good year over year, maybe mid-teen growth. They said the fixed trading numbers were not as good, softer. So I think it will be similar to what you saw here with JPMorgan. Equity trading in particular, real strong. Fixed, maybe not so.
Coming a little earlier than expected, numbers from Jamie Dimon, some notable business misses. Fixed sales and trading revenue coming in at 5.37, the estimate was 6. A notable downside surprise. Investment banking revenue coming in north of 3.1 billion, the estimate was 3.27. The upside surprise comes from equity sales and trading revenue, but overall in its entirety this morning, AMH, we have a name not performing over the last couple of months and not performing this morning.
Also commentary from Jamie Dimon that potentially he is more conservative. It comes at a time when third-quarter equity sales and trading, talking about $5 billion. It's not the $6 billion in the second quarter, it's still incredible. It's the second best in its history, but not enough to get it done for the stock.
A second look at the numbers. What did you see?
I think the focus, again, was on deal-making activity. We've seen a lot of expectations for JPMorgan to log its best quarter for dealmaking since 2021. A little disappointment with the investment banking revenue. Their new head of global M&A was saying that there are $2.5 trillion of deals globally this year. The momentum into 2027 looks to be continuing. What's happening then is the question, why is investment banking revenue slightly under estimates here? We are seeing, of course, the advisory revenue exceeding estimates, $1.22 billion versus an estimated $1.14 billion. That at the very least corroborates that picture of a more optimistic picture for deal-making for the rest of 2026 into 2027. Given some of the numbers we are seeing, particularly in the investment banking revenue, a slight miss, how much is that momentum going to continue into 2027? Jamie Dimon himself talking about some of the challenges, talking about geopolitical issues that could weigh on customer sentiment moving forward. Let's see if that is something that weighs into the sentiment of deals moving forward into next year.
The latest from JPMorgan, the stock down by about 2.8% this morning. The next up for this conversation in about 50 minutes at 7:30 Eastern, Goldman Sachs. 30 minutes after that you will hear from Citigroup. Not the best start to bank earnings from JPMorgan. Down by 2.6%. With an update, let's cross over to Vonnie Quinn.
Dismissing fears AI will replace workers, speaking in New Delhi earlier.
This is all disaster marketing. We are going to see only more work coming our way. Of course, companies will have to get their act together, transform themselves.
Placing responsibility on companies to re-skill workers and build new capabilities around AI capacity. You can watch our interviews at LIVE<GO> on the terminal and Bloomberg.com. Iran preparing for a wider war. The Wall Street Journal reporting the country is fortifying defenses and rallying loyalists ahead of potential American strikes. Iran is strengthening several sensitive locations. JPMorgan's shares lower in the premarket, reporting fixed sales and trading revenue, with third-quarter estimates for earnings per share that fell short of Wall Street estimates. Wells Fargo also trading lower after third-quarter net interest income that met average analyst estimates. Goldman Sachs and Citi reporting later this morning. That is your Bloomberg Brief for now.
Next, big banks taking center stage.
The fundamentals are going to be solid. If expenses are still going up and they are talking about a much softer pipeline for growth, then that's going to be, you know, tougher for investors to swallow.
More on numbers from JPMorgan and Wells Fargo and Goldman Sachs coming up a little later. We will catch up with Gerard Cassidy again from RBC.
It is a big morning for bank earnings. Equity futures are negative by one-tenth of 1% on the S&P 500. Not a great start from JPMorgan. The Nasdaq down by 0.6%. Chip stocks beaten up off the back of Chinese competition and comments from the industry weighing on that sector, weighing on the Nasdaq, weighing on the S&P. JPMorgan lower in the premarket. Jamie Dimon not doing so well today. Down 2.4% off the back of these headlines. This one in particular, fixed sales and trading revenue at $5.37 billion, the estimate $6 billion, a notable downside surprise.
Notable for this market. We knew the bank earnings were going to be potentially nerve-racking for the CEOs. If you have Brian Moynihan and David Solomon, and we are not seeing the same activity. For JPMorgan, this was a big miss. Even though they do better in some areas, this is putting a lot of pressure not just on this stock. They are all going lower.
Defensive posture this morning. Two-year yields down two basis points, 2s 4.76. The front end of the curve, comments from Governor Waller of the Federal Reserve at the Bloomberg New Economy Forum, making the point that high yields could do some of the work for us. 4.76 on 2s, a few weeks out from the Federal Reserve get-together at month end. Before that, a read on CPI tomorrow morning. PPI after that. Setting the tone for interest rates and that debate of the FOMC.
When yields go up, will that impact interest-rate-sensitive sectors? Of course it will. He said while it is not the Fed's intention, higher yields are 'doing a little bit of the work.' If higher yields are doing a little bit of the work, waiting for the CPI, you said there is no urgency, it pretty much shows October is off the table. To your point earlier, we still need to hear from Chair Kevin Warsh.
The Federal Reserve taking a backseat this morning, earnings top of mind. Big things taking center stage.
The fundamentals are going to be solid. Most of what you're going to hear about from the big banks are going to be about not just paying for the revenues that are coming through, but also investing in the future. If expenses are still going up and they are talking about a much softer pipeline for growth, that's going to be tougher for investors to swallow.
This is tough to swallow. JPMorgan locking us into third-quarter earnings season with a big miss. Gerard Cassidy has had the opportunity to comb through the numbers.
On second look, it's interesting that the traditional commercial banking businesses, particularly credit, was quite strong. Wells, the provision for loan losses came in below expectations. Non-accrual loans declined sequentially. When you shift away from the capital markets business for a moment, the traditional commercial banking businesses remain very healthy. There are certainly some growth expectations that we all have to adjust to because of what we learned in the second quarter, but so far traditional banking lines of business, the fundamentals are good.
Are you giving a nod to Main Street? Two occasions you've alluded to that in the last 10 minutes. Is there a different part of the banking world you're leaning into into year-end?
Yes is the short answer. What I mean by that is, we have been suggesting that since the start of the year, and we were a little early, the capital markets businesses were going to have a rate of growth challenge, second-derivative challenge. The traditional Main Street businesses, we were expecting them to accelerate because of commercial loan growth, which, as you know, post-2023 it was depressed. It has really picked up this year based on the H.8 data, seeing strong commercial loan growth. That's Main Street. I think the capital markets players for the last 12 to 18 months have had the spotlight. We think it is shifting to Main Street, to commercial lenders.
In the future, how good will Main Street do when you have Jamie Dimon talking about large fiscal deficits, sticky inflation, elevated asset prices, rising interest rates, all of the shifts under the surface?
It is a good point, and he has always been very cautious in his comments like this. What he is saying today is no different than what he has been saying over the last six or longer months. It's understandable why he makes statements like that, but under the surface, think about all of the data centers being built in Ohio today. Those data centers and the AI revolution this country is going through is very positive. We understand the concerns, geopolitical concerns, we see it, but right now the economy seems to be shaking that off domestically. The outlook remains, I think, robust for U.S. economic growth. We see that compared to Europe and other parts around the world.
So much of that is putting a lot of weight on the AI buildout. What do you have to say that we have red and blue states right now pushing back? It is on the ballot for this midterm.
No, it's a very valid point and something we've got to be very focused on. When you take a look at the expectation, the hyperscalers I think this year are expected to spend over $800 billion in capital expenditures, a higher number next year, maybe closer to $1 trillion. There is pushback, but there is still a lot of progress being made. Many, not all, states are pushing back on data centers being built, but it is something similar to what we saw with the fiber-optic buildout 20-something years ago. I think you are going to see it will continue. There will be, at some point, at some point it will run out of gas, but it doesn't seem over the near term.
How would you describe their risk posture, come the set of banks on Wall Street, their appetite to lean hard into that theme?
Interesting question, because I think the risk-on approach is going to pick up. The reason being is you get further into the expansion, lenders get a little more confident, but at the same time take greater risks. If you look at what I have been calling the risk spectrum, Jon, when you look at the risky loans — I would call that commercial and industrial loans, commercial real estate loans, commercial loans — as a percentage of bank capital, we are relatively low compared to prior cycles. The capacity to take more risk is there. As I mentioned, the credit picture today improves, so credit quality remains very resilient and healthy. I think banks can take on more risks, and they probably will, but it will be something we all need to keep an eye on, especially if the economy slows down sometime in 2027 or 2028.
Potentially pressure building elsewhere, picking up on traditional banking. What happens with net interest margins from here, and to what extent we are entering a period when they have to pay more for deposits given the move from interest rates?
It is a good question and a question we often debate at the start of a tightening cycle. When you go back to the past five tightening cycles, initially net interest margins improved. When you think about it, banks are naturally asset-sensitive, meaning their loans tied to Fed funds reprice immediately. What they pay on deposits, they tend to lag.
What you will see, at least initially, we think, is that net interest margins, because of this rate increase we saw in September, will move slightly higher in the fourth quarter. But the real question becomes: how long does the tightening cycle last, and what happens to the yield curve? Because in past cycles, they eventually come under pressure as the rates continue to rise and the yield curve flattens out. At least initially, in the first two quarters, you quite often see margins expand. We expect that to be the case.
The other reason, too, is we are not as levered. When you go back to the early 2000s, the banking industry loan-to-deposit ratio was over 90%, so they were very aggressive on fighting for deposits. Today, we are not hearing that loan-to-deposit ratios are lower.
Jonathan: Stay close, we will catch up to you again in 35 minutes. Not the best of starts to earnings season on Wall Street, downside surprise from J.P. Morgan. That name is down more than 3% in the premarket.
We will catch up with Sarah Hunt, Michael Townsend, George Saravellos, and a whole lot more.
You really don't see any slowing of consumption yet.
The commentary out of the banks was positive when it comes to consumer spending.
The fundamental components. Rates higher is not slowing things down the way they normally would.
This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz and Annmarie Hordern. Jonathan: Good morning for audience worldwide, the second hour Bloomberg Surveillance starts now.
Down by one-tenth of 1% on the S&P 500. Chip stocks getting hammered in the last 24 hours, weighed down by competition out of China. Pulling back slightly on earnings miss from J.P. Morgan. Down by two to 3%, we are negative by close to four following these results. Let's start with the good: equity sales and trading revenue at 4.95 billion, the best third quarter on record. As for fixed sales and trading revenue, that comes in much lighter than expected, comes in at 5.37 billion, weighing on the stock down by 4%.
Really spooking the share price, declines of more than two years. And then you noticed we heard from Bank of America and Goldman Sachs, the expectation maybe wasn't guided lower for J.P. Morgan going into this. Jamie Dimon's commentary sounding constructive on the U.S. economy, fueled by strong business investment, ongoing consumer spending. He then lists a few: fiscal deficits, inflation, elevated asset pricing. Of course, we heard from a lot of bank analysts, it is that 10-year yield that's been pushing back in geopolitical conditions.
That's the next stop for this conversation. After that we will hear from Citi tomorrow, from Bank of America, Morgan Stanley. Over the last few months, I mentioned Goldman Sachs off highs of the year by more than 20%. For the bank index, down by around 10 since the highs of August. On the S&P, they have not had a good run. Capital markets, you've got the backup in the bond market, we're seeing that. You also have the issues as well around the tech trade and disruption we might see as well. There is a bit of a cloud over these names and they had a decent bit of earnings.
It is mounting pressure, it's not just what's going on with rates, but also the idea that potentially — Torsten Slok talked to us about this yesterday, but maybe he went a little bit far in his note — this idea of can you have an agentic AI bank run. There's a lot of pressure right now on these names. At the same time, it's a very difficult position when it comes to what's happening with IPOs potentially slowing down, also ahead of the midterm election.
It got us talking about it at least, off the back of these results. That number is down almost 4%. We catch up with Sarah as J.P. Morgan disappoints, kicking off big bank earnings. Gerard Cassidy joins us. We get to them in about 27 minutes' time. And George of Deutsche Bank warning AI is the market's most underpriced risk. We begin with stocks adding to losses, the kickoff turning into a season from J.P. Morgan. Unfazed by this start, writing while the AI story goes through cycles of concern, all is not gloomy. Strong earnings continue to help investors. Sarah joins us for more.
I've said this repeatedly, the weight that's put on the shoulders of earnings season given the jitters everywhere else. You can ignore energy and rates because earnings season will be so good.
I think J.P. Morgan just made it a little bit harder. It's one of those things where you want to see it expand across more than just one area. But a lot of the heavy lifting is being done by technology. When people talk about earnings growth, a huge percentage is coming from a handful of names. You want to see everybody else doing fairly well. I think this is one of those moments where we need to see where everybody else comes in, but it's probably not — people are looking for some more strength than they got, and that is on the margin not so great given all the things going on in the backdrop.
You get through the banks in the next 24 to 48 hours, what do you expect to hear from big tech? What kind of guidance do you expect to see on capex? And what would be positive for those names?
The big argument about data centers and whether or not they should be put in and how fast they should be put in is in and of itself potentially the capex. A lot of the discussions about going forward, you've had such a meteoric rise in capex over the last couple of years, at some point that starts to moderate out. It's probably better if it does. Where are we going to get all the financing? Here is the bottleneck. So I think you need some sort of slowing, but it depends around hiking rates for good reasons or bad reasons. Is that slowing for a good reason or a bad reason? I think the interesting nature of that.
Is the Federal Reserve trying to tap the brakes on all this activity? Tapping the brakes on what's happening with bank activity as well.
They are trying to, because they don't like what's going on in the inflation picture. We've had conversations about whether or not tapping the brakes or raising rates are things causing the inflation. The question about what is the tipping point for the technology. There is a point at which rates get high enough that it is an issue. It was not at five, and what is it going to be? I don't think we have the answer to that. It seems at such an arms race that people are willing to go through.
Is a bet on these groups a bet against the Federal Reserve?
Sarah: I would not go that far, but I think a bet on these groups is a bet on the continuing animal spirits of we have to keep spending and going, we have to keep doing this. We are going to win in the end if we keep doing this. I think as that question goes back and forth, which it does periodically, and becomes something people get more worried about, that's where the problem could set in for 2027. Because when we started to talk about earnings growth in '26, we were okay.
How much is a bet on these groups mean?
Well, these groups are driving a lot of things in the rest of the economy. When they were talking about the spending on Main Street or the commercial loan growth, I think some of that is on the back of the fact you have these massive spending programs coming up because small businesses have to keep up and everyone's trying to keep up with this big spend on infrastructure. There is a symbiosis there, so it could be a bit of an issue for sure.
If the Fed's hiking rates trying to clamp down on AI, how much does that affect everyday consumers? How much do they get crushed because of this?
Sarah: The everyday consumer is getting crushed for a lot of reasons, which is why the consumer part of the index and where people are positioned is so wide, because people are already worried about that.
Looking at the spending, people are still spending. Bank of the American consumer, I always love seeing that report, just a breakdown of the data. Everyone feels bad about what's happening right now, sentiment is not fantastic, but the consumer is still spending.
This came from a report, spending in September, the aggregated credit and debit card data showed spending by households up more than 6% year-over-year. Spending on gas rose 5.5%. Both growth rates, but the third longest we've seen in the last four years. How difficult is it to reconcile that with what people say they feel about this economy?
Sarah: The spending is going up because price levels have gone up. A lot of that is higher, and some of those things, those guys are having a hard time. Margins have gone down, transportation costs are up. So I think that that higher spend isn't people feeling super optimistic about a lot of things. In some cases, that is because things have gotten more expensive and people are spending more without those companies translating into making more money, and that is tricky.
We are very close to the midterms now. How are you thinking about that? Is this a clearing event, or will it be the start of more potential volatility for Washington?
Sarah: It's something people talk about for so long that once it's over and done with, there will be a decision on what that means. I think the likelihood of having a split administration is much higher than it was a few months ago. There's no question sometimes the markets prefer that because it means less potentially can get done. Talking about whether or not there may be some sort of bipartisan action if in fact it happened. I think the answer is markets don't like when administrations can do a ton of things, and I don't know that it's necessarily going to kick off — it may kick off more rotation than volatility specifically to the overall market. It may be more people start to think about repositioning.
How much needs to be in agreement when it comes to around oil prices? The president, as every other day has been saying since February, prices will drop like a rock. They've gone up.
Sarah: It is going to be important for an enormous number of things because the back end of the curve is starting to move up, and for a long time it hadn't. People start hearing that if the input cost — that's another problem longer-term for the Fed. But how does the Fed fix that by raising rates so much and without actually killing the economy?
Once again, these numbers from J.P. Morgan. I'm not sure why it took so long. This is the outlook for full-year net interest income, looking for 106.2, 105.28. Off the back of that guide, the stock turns around. It's now positive on the session by 1%. For all the worry, it's still strong.
Those are what everyone was focusing on, but overall it certainly seems like there's a lot of good that's going on. Making another good point about in the beginning of the tightening cycle that net interest margins are better. I think there's going to be a question after we get through December, what happens with the Fed going forward, and we settle into some place on the yield curve where people feel more comfortable, and is it going to be good enough for them.
If we don't, I think it's going to be much more problematic.
That outlook, season's going to be rough. A wild ride. Making the case that he's waiting till the midterms are over before he puts pen to paper on what he expects to spend next year.
The midterms, potentially you can have places with something like Texas, Arkansas actually going blue. I think the big question is, I don't feel it will be some sort of clearing event, but is the midterms the start of more escalation of volatility?
A turnaround for that name, J.P. Morgan, raising the price off the back of fixed sales. Stock had traded lower by three to 4% off the back of the guide. Comes about 40 minutes after the full-year net interest income of about 106.2 billion. So a decent guide from J.P. Morgan, that name is up by more than 1% in the premarket. An update on news worldwide with your Bloomberg Brief, let's cross over for more.
Vonnie: Fed Governor Christopher Waller says the surge in long-term yields is doing some of the work for the Fed by tightening monetary policy.
Is not going to impact interest-sensitive sectors like housing? Yes, of course. Is that going to tighten financial conditions for most products? It should. So it's not our intent to do it, but that's one of the natural spillovers from this surge in yields at the ten-year and higher.
Speaking of the New Economy Forum, Waller also saying he believes higher yields are being driven by strong economic growth rather than panic over inflation expectations. You can watch all our interviews on the New Economy Forum at LIVE GO on your terminal.
Bank of America out with its latest fund manager survey, finding investors are bullish into the midterms. According to the survey, the most crowded trades are long global semiconductors, short U.S. Treasuries. Investors are also the most overweight tech since August of 2020 as the pandemic rebound is happening. Delta Air Lines delaying the launch of its nonstop service between Atlanta and Saudi Arabia until next year. The company planning to take off the new offering in March due to the widening conflict. It was originally slated to be next week. That's your Bloomberg Brief.
Up next on the program, the president doubling down on his diesel deal.
What's your response to Republicans on the deal with Russia? These Republicans can't really consider it. It's not really a deal with me, it's a deal with the rest of the world. So anything that can help our farmers or ranchers, I like.
Jonathan: Up next, we catch up with Michael Townsend of Schwab. You're watching Bloomberg TV.
Jonathan: Equity futures negative by one-tenth of 1%, erasing some losses. We are down by seven on the Nasdaq, some pain in chip stocks worldwide off the back of some competition in China. The Nasdaq down by 0.7. Look at this turnaround. J.P. Morgan dropped a bunch of results. Trading revenue comes in at 5.37, huge downside surprise. Stock trades lower. Sitting there waiting, waiting, waiting. 45 minutes later you finally get the guide from J.P. Morgan. Net interest income, the estimate was 105.28, so better than expected. In this universe of bank stocks start to trade in different directions. Positive on JPM, the stock is up by 0.6%.
Annmarie: Thank God for that. Slide will be found in terms of their guidance, boosting its net interest income forecast for the year. Not only seeing J.P. Morgan turnaround, but also the other banks. The pressure getting some, at least what you're seeing, some of those current concerns is the net interest income forecast.
Jonathan: 10 or 15 minutes or so, that name has been beaten up quite severely off the highs earlier this year. Having a decent year up until then. Goldman is down by four-tenths of 1%.
Let's focus on the latest with the Middle East and energy. The president doubling down on his diesel deal.
What's your response to Republican criticism of your diesel deal with Russia? I think these Republicans can't really consider it. We can do a restriction or cap on diesel. That would have a very big impact. It's a deal for the rest of the world. So anything that would help our farmers or ranchers, I like.
Jonathan: The president, Donald Trump, defending his deal with Moscow to increase Russian diesel exports as market experts forecast the new flows will do little to lower prices going into the midterm elections. Tyler Kendall has the latest.
Tyler: President Trump brushing off criticism by some in his own party who point to this as upending years of sanctions practice. The White House argues this is being done in a bid to curb costs. The national average stands at $6.28 today according to AAA. Our own analysts say the initial volumes released under this deal will do little to close the supply gap. It's putting Republican candidates in a tough spot, prompting a bipartisan group of senators to call on the U.S. to immediately reverse course on the deal, arguing the White House failed to notify Congress under the Russian energy ban. It comes weeks after Republicans passed a bolstered Russian sanctions bill aimed at tightening penalties on those countries that import Russian energy supplies. One of the issues is the White House has very limited levers it can pull between now and election day to actually bring down those prices. The president floated the idea of a federal gas tax holiday, but lawmakers would have to come back to town to pass that, and by the end of this Friday, 17 states will already have early voting underway.
Jonathan: Michael Townsend joins us for more. Michael, welcome to the program. A controversial decision with plenty of pushback. Do you expect any benefits from this agreement with Russia?
Michael: Good morning, it's great to be with you. I think as Tyler pointed out, it will be very difficult to have any impact that gets to people's pocketbooks quickly. Gas prices are the one thing every voter knows what they pay, and diesel prices are obviously getting goods all over the country. I think it will be very difficult to get this through to the end price at the pump, and some of that concern by voters over gas prices is already baked in. As Tyler pointed out, we already have early voting starting in a number of states, and so I think it will be very difficult to have an impact on the election at this point.
Does this deal do more damage than good?
Michael: It's put Republicans on Capitol Hill in a difficult situation. We have the sanctions bill which got 80-something votes in the Senate less than two months ago, and you've got at least four Republican senators who are out publicly condemning the deal. But it puts those candidates in places like Iowa, which I think is one of the ground-zero elections for control of the Senate, it puts them in such a difficult position to have to defend this on the road. I just think it's a difficult position for all the Republicans.
You mentioned when Congress does come back, they will face a December 11 deadline to avoid a government shutdown. Are we going to have this game where we are shut down on Christmas?
Michael: We will see. I think it is more likely they kick the can down the road to say February or something like that in order to put it in the hands of the new Congress that takes office in January. The so-called lame-duck session after elections is an unpredictable one. Pretty all of the senators who have lost or retired, their motivation to be in Washington is pretty low. I'm thinking it's more likely we will just see a punt down the road and leave it in the hands of the new Congress after the first of the year.
Give us a sense of everything about the new Congress and the makeup.
Michael: I think the House of Representatives is going to be controlled by Democrats. I think we are past the point of whether Democrats can win House control, I think we are in by how much. I think a big night on election night for Democrats would see them come out with, say, a 10, 12, a 15-seat majority. The real battle continues to be in the Senate. It's a real toss-up still. You have to have Democrats hold onto the seats that they are defending. There were three Democratic senators retiring in Michigan, Minnesota and New Hampshire. The Democrats need to win those seats and hold onto those in order to have any realistic chance of capturing the majority. I do think Democrats will flip North Carolina, where Senator Thom Tillis is retiring and former Governor Roy Cooper is the Democrat nominee. He's been ahead in polls pretty consistently. Democrats have to find three red states to flip, and they probably have a half dozen from Alaska to Texas to Ohio to potentially flip. So I think it is absolutely plausible and possible the Democrats can get there, but I do not think it is a slam dunk at this point with three weeks to go.
We saw headlines in the last 24 hours with regards to Congresswoman Ilhan Omar. What do we know about the investigation and where that is going?
Michael: Obviously a big surprise to have a raid on her home to look for what the administration says is an ongoing investigation and look for items related to that. I think there is a lot of concern obviously that the administration is pushing the boundaries here in terms of using its ability to use the Justice Department to intimidate its political opponents, so you will see pushback and criticism about that from Democrats. And they probably won't be public about it, but it cannot make her Republicans on Capitol Hill comfortable either. We will see where this goes.
Do you feel like this is politically motivated, or do you think this is based on solid evidence?
Michael: We will have to see. It's hard in this environment to get past the idea that it is politically motivated. There may be something there in the case the administration is building, but we don't know. I think it is hard in this atmosphere not to feel like something that happens 22 days before a very closely contested election isn't somehow politically motivated. So it is on the administration to articulate what it is that they are doing and what they think they are looking for. I do not know that we will get any clarity from the administration, but I think it is hard not to see it through that lens, whether that's right or wrong.
I don't think any of us want to prejudge the outcome of that investigation just yet. Michael Townsend of Schwab. Just weeks away from the outcome of the midterm elections.
That's where you're getting a lot of pushback from Democrats on Capitol Hill saying they are too close to a midterm election to have what's going on in terms of this investigation with federal agents coming into her home.
Breaking news: Goldman equity sales and trading revenue coming in at 6.44 billion. Fixed sales and trading revenue coming in at 3.47 billion, the estimate was 3.72. So crushing it on equities, missing on fixed sales and trading revenue. Who does that sound like? J.P. Morgan a little bit earlier this morning. Almost a reflection of what we saw from them.
Crushed it on equities. We will get into that in just a moment. Goldman doing okay, up about 1% in the premarket. We get our thoughts from Gerard Cassidy of RBC. You are watching Bloomberg TV.
Jonathan: There is a theme coming together on Wall Street. The theme from J.P. Morgan to Goldman Sachs, equity sales and trading revenue is fantastic for the third quarter. A bit of a struggle, we will get into that in a moment. Pulling back, up by not even one-tenth of 1% on the S&P, down by 0.7 on the Nasdaq. The chips trade in just a moment.
In the bond market, a bid to the Treasury market following a long weekend and the reopening of the market following Columbus Day yesterday. Yields are lower by five or six basis points. On Tuesday, about 4.76. Governor Chris Waller speaking to the Bloomberg New Economy Forum, making the case that maybe high yields could do some of the work for them. Closer to that, a little bit more in the October meeting and that decision. Most people anticipate we won't get a rate hike in a few weeks' time. The next stop is the debate, CPI, and about 24 hours later you should hear from the Fed chair, Kevin Warsh. Looking at crude, Brent and WTI still elevated, around 105 on Brent, down about 1.8 percent, but nothing settled about the situation in the Middle East.
Saudi Arabia continues to intercept ballistic missiles launched by the rebels late last night. The president saying he has spoken to his Saudi counterpart. A lot of people questioning whether or not this administration decides to get more involved, especially given the fact the kingdom is coming under increased pressure, especially at the time we were with Delta pushing back their direct route to Riyadh. The whole point, especially with AI and new investing money, was they would be the source of capital. They are flush with capital. And now they're going to be potential executives saying we will put pauses right now because it is just too fragile what's going on.
The latest on the Middle East and crude, two hours away from the cash open. Yahira has more.
