In its quest to find just the right time to raise interest rates, the Fed seems to have discovered a third mandate: creating a perfect world. » Read More
A week full of Fed speak has brought little additional clarity about when the U.S. central bank will resume its rate-hiking cycle.
Multiple remarks from top officials — both past and present — focused on how the Fed will need the navigate the path forward.
Some, like current voting member Esther George and nonvoting member John Williams believe the course should be aggressive. Others, like Chair Janet Yellen, continue to counsel for a patient approach. The market even heard from former chairs Alan Greenspan and Ben Bernanke, with the latter saying language itself is a an effective policy tool.
At the end of it all, the market remained confused.
Two important trends that have helped propel the stock market are coming to an end, posing significant challenges for investors, according to Wall Street experts.
One is a near-term pattern — namely the rush to cover short positions that has driven the S&P 500 more than 13 percent off its Feb. 11 intraday low. JPMorgan Chase's models show that short covering is running out of gas.
The other is longer term — namely the oft-cited "Fed put," or the backstop traders believe has come from the U.S. central bank's easy monetary policy. Strategists at Bank of America Merrill Lynch see a pattern in which the riskiest stocks that benefit the most from Fed policy are now underperforming their higher-quality peers.
Both JPMorgan and BofAML agree on one element of strategy: The shift should be on from momentum to value stocks as the rally stumbles. Major averages were down nearly 1 percent across the board in Thursday trading.
"We think this recovery has been largely driven by fundamentally insensitive strategies and broad-based short covering," Dubravko Lakos-Bujas, JPMorgan's head of U.S. equity strategy, and others said in a note to clients. Models the firm uses to monitor market trends imply "little room left for further short covering" while trend followers "have covered most of their shorts and are currently close to being neutral equities."
In the polling places and on the airwaves, there remains a high level of uncertainty about who will be the next U.S. president. Not so on Wall Street and the markets.
Recent indications from deep-pocketed institutional investors as well as those who frequent prediction markets say Hillary Clinton will win. And it's not close.
More than 70 percent of respondents to a recent Citigroup poll of institutional clients viewed the former secretary of state, first lady and New York senator as the likely 45th president. Just over 10 percent give Donald Trump the nod, while fellow Republican John Kasich is a few points behind. Democrat Bernie Sanders and Republican Ted Cruz barely register. (The poll was taken before Sanders and Cruz scored big primary wins Tuesday in Wisconsin.)
The online predictions markets, where traders can place their bets on politics and a host of other events, tell a similar story.
On PredictIt, Clinton traded early Wednesday at a price of 59 cents a share, which equates to the probability participants give her to be the ultimate winner. Trump is at 17 cents, Sanders at 16 cents and Cruz at 15 cents.
Banking news may go from bad to worse this spring, with European Union banks set to announce earnings in coming weeks after their U.S. counterparts.
EU bank shares' performance has broadly been worse than even those of their U.S. competitors to begin 2016, with some banks seeing more than 30 percent of their value cleaved off in a turbulent market. Interest rates applied to EU banks are now lower than rates applied to U.S. institutions.
Now, what has become a challenging market for European banks is forcing some to scale back operations and retrench efforts at an inconvenient time.
"In Europe, banks are still working through problems," said Frederick Cannon, Keefe Bruyette & Woods' director of research.
But it's not clear when European banks' problems will be alleviated. Whereas the U.S. recovery from the market swoon that began the year is expected to allow the Federal Reserve to eventually proceed with its plan to lift interest rates, concern abounds in the EU over whether rates will be cut further, and go negative.
Barclays will report earnings April 27, according to an announcement Wednesday. It will be followed by Deutsche Bank, which will disclose its performance on April 28. On May 3, UBS, BNP Paribas and HSBC are each expected to announce results. Credit Suisse will release earnings May 10.
The U.S. economy would have to grow far beyond anything its seen since World War II to meet Republican presidential front-runner Donald Trump's goals, according to a Washington Post analysis.
In a wide-ranging interview with the newspaper last week, Trump insisted he could, among other things, eliminate the nation's $18 trillion deficit in the maximum eight years he could serve in office. To do so, he would renegotiate trade and national defense agreements with other nations, cut waste and generate growth that would eliminate the debt, which roughly doubled under President Barack Obama.
However, the Post found that gross domestic product would have to explode by 13 percent to 24 percent annually to meet that goal. Even then, eliminating the debt would need a set of perfect conditions, including an agreement with Congress to freeze national spending with no reduction in tax revenues as a share of the economy.
JPMorgan Chase and high-end automaker Maserati North America are partnering in an auto-finance agreement that could help put more of the sleek sedans and sporty SUVs on U.S. streets.
The Italian automaker, which is owned by Fiat Chrysler Automobiles NV, joins existing Chase Auto Finance partners Jaguar Land Rover, Mazda, Subaru and Enterprise Car Sales. At a time when auto sales in the U.S. are chasing all-time highs, it looks as if the bank is prepared to continue expanding its roster of partnerships, according to Jagdeep Dayal, head of Chase Auto Finance's private label business.
"Our private label solutions are tailored to meet the unique needs of each brand," Dayal said. "We'd be honored to partner with additional auto brands to serve their customers' needs."
They're singing the same song on Wall Street that they are in Flushing, Queens: "Just wait 'til next year!"
While beleaguered fans of the New York Mets are starting off the season hankering for another trip to the postseason, bankers are just hoping one day the Federal Reserve will follow through on predictions that it will raise interest rates, and provide a badly needed boost to Wall Street banks' net interest margins.
The largest Wall Street banks are all facing lower earnings projections for the first quarter of 2016 than what they reported the prior year. For consumer banks, Wells Fargo's consensus estimates are for 99 cents a share; average estimates for Bank of America expect 25 cents a share in earnings; and Citigroup estimates predict the bank will report earnings of $1.14 a share. JPMorgan Chase consensus estimates are for earnings of $1.27 a share.
U.S. consumer banks had begun the year following economists' expectations that the Fed would continue on the path it began last year, of raising interest rates. Higher interest rates translate into higher net interest income for top banks, which host hundreds of billions in consumer and client deposits. But as a pall was cast over the market to begin 2016, the Fed had to retreat from its expected rate hikes, and that in turn will cost consumer banks.
"Net interest margins will be very much in focus," for earnings this quarter, said Deutsche Bank large-cap banks analyst Matt O'Connor.
A tightening labor market and rising inflation against a backdrop of slowing overall growth are painting an increasingly stagflationary picture for the U.S. economy.
Stagflation, or conditions in which costs are rising but growth is not, last was seen in the 1970s, before then-Fed Chair Paul Volcker had to push the economy into recession to slay the inflation dragon.
Now, with a variety of factors coming together to show inflationary-deflationary cross currents, Wall Street is bracing for another battle.
"During the last year, as the economy has returned closer to full employment, the core cost structure of the U.S. economy has risen more aggressively and more broadly than ever before in this recovery," Jim Paulsen, chief investment strategist and economist at Wells Capital Management, said in a report for clients. "While the U.S. is not facing runaway inflation, the concept of stagflation (i.e., rising inflation rates combined with slower real economic activity) has become much more noticeable."
Paulsen has been the Street's most emphatic messenger of the stagflation theme, contending for months that Fed policymakers are about to face a dilemma that will confound their efforts to raise interest rates and get monetary policy back on a normalized course.
Sheila Bair, who for five years led the FDIC, is taking on a new role: She is joining online lender Avant's board of directors.
"It's been a long-term interest of mine," Bair said. "I like the transparency, and Avant doesn't charge origination fees."
Bair has held a number of roles in government and regulatory bodies responsible for overseeing the banking industry. She was assistant secretary for financial institutions in the Treasury Department, and commissioner and acting chair of the Commodity Futures Trading Commission.
From 2006 to 2011, Bair led the FDIC under Presidents Barack Obama and George W. Bush, playing a crucial role in providing credit support to banks in the U.S. financial system as they were challenged in an unprecedented liquidity crisis.
Start-ups are bolstering their ranks with government veterans as regulators are actively looking to change the way the industry does business. On Thursday, the Treasury Department's Office of the Comptroller of the Currency revealed plans to change regulations that apply to financial technology and the banking industry.
Job creation isn't the most important part of the monthly employment report anymore. Instead, Wall Street is looking under the hood for clues about overall U.S. economic health.
Economists figure payrolls grew by about 200,000 in March, or slightly below the recent pace of 228,000 over the past three months. The unemployment rate probably will hold steady at 4.9 percent.
It's no secret that beneath these numbers, Federal Reserve policymakers are looking for signs of wage growth that has been elusive for most of the recovery. But there's a new wrinkle to that equation that points to an even longer delay in getting salary gains back to healthy levels.
The labor-force participation rate measures how many potential workers are actually out looking for jobs. In recent years it has continued to fall to levels not seen since the late 1970s.
However, the level has been on a mild upswing, gaining half a percentage point since September 2015 to its current 62.9 percent level, the best since January 2015.