US Economy and Credit Markets Ended Oct. 16, 2020
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Equities were generally positive last week. The S&P 500 Index was up 0.21% as Industrials and Communication Services were the top sectors and Real Estate and Energy were laggards. U.S. equity returns continue to ebb and flow as a government stimulus talks are played out in public. 3Q bank earnings started last week after JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co, CitiGroup Inc. and Goldman Sachs Group Inc. all reported quarterly results. JPMorgan was up 0.31% on news they only added $600m in loan loss reserves, well below estimates and the $8.2b from 1Q and $10.4b from 2Q. Goldman Sachs fell 0.64% on news FICC sales and trading came in above analyst estimates but expenses rose by 6% driven by pay increases. Wells Fargo fared the worst of the big banks with a -9.64% return after favorable loan loss reserves were trumped by lower than forecast net interest income. Bank of America fell 4.42% and CitiGroup fell 3.87% as a flat yield curve continues to lower net interest income. Investment behemoth Blackrock Inc. announced record quarterly earnings of $9.05 a share. Company earnings were fueled by net fund inflows of $128b well ahead of the $99.5b estimates as they saw their AUM reach a record $7.81t. Royal Caribbean returned -17.25% last week as they announced plans to raise $1b in capital via debt and equity offerings to cover near term operating costs and repay some senior notes that are coming due. As election uncertainty continues, focusing on events that are likely to occur can add some investing clarity. The U.S. should have a vaccine sometime in the next few months, there will likely be another large round of federal stimulus in the next few months, the Fed will likely keep rates near zero for as long as the economy needs it and 2020 will provide very favorable comps going into 2021. We remain bullish on equities as there is no alternative to meaningful real returns in this low rate era.
Posted on Monday, October 19, 2020 @ 7:52 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.