Big bank earnings can usually be relied on to help clarify the outlook for both U.S. consumers and the wider economy. If the first raft of reports this earnings season is anything to go by, investors may not get the answers they crave.
The trio of big banks reporting Friday—JPMorgan, Wells Fargo and Citi—all beat earnings expectations as the Federal Reserve’s rate-hiking campaign boosted their profits.
But while they all struck a positive tone about the current health of the U.S. consumer, there was an acknowledgment that things could change in the months ahead.
Wells Fargo CEO Charles Scharf said that, while the economy is performing better than expected, he sees it continuing to slow and uncertainty remaining. Citigroup CEO Jane Fraser said the bank was seeing “a cautious consumer but not necessarily a recessionary one.”
JPMorgan CEO Jamie Dimon perhaps captured the mood most effectively. “The consumer is in good shape, they’re spending down their excess cash. That’s all tailwinds.” he said. However, he warned the headwinds are “substantial and somewhat unprecedented,” citing Russia’s war in Ukraine and quantitative tightening among other factors.
The upshot is that whether there will be a soft landing, a mild recession, or a hard recession is still unclear, Dimon added.
Those hoping for an answer to that question may therefore be disappointed. Not to worry, Bank of America and Morgan Stanley may provide more clues when they report earnings Tuesday, or Goldman Sachs may steer everyone in the right direction Wednesday.
It may be worth looking beyond bank earnings for evidence of consumer and economic resilience. Retail sales data Tuesday and a flurry of housing data may be just as important in lifting the haze.
—Callum Keown
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China Growth Disappoints, Sending Oil Down
Economic growth in China was surprisingly weak in the second quarter, a sign the country’s recovery from Covid-19 lockdowns is losing momentum.
- Gross domestic product increased just 0.8% in the second quarter, compared with a 2.2% expansion in the first three months of the year. Retail sales and exports dragged down growth.
- The figures could be taken as either a good sign or a bad sign for Chinese stocks. On the one hand, they show the world’s second biggest economy is struggling. On the other, they put pressure on the government to step up stimulus programs to get the country back on track.
- China’s sluggish expansion is weighing on expectations for energy demand. Brent crude, the international oil standard, and West Texas Intermediate, the U.S. benchmark, were both down early Monday.
What’s Next: The biggest question for investors is how China’s government responds—so far it has been reluctant to undertake large-scale stimulus. Inflation isn’t a problem in the country, which could give the central bank room to cut interest rates. Or the government could try more direct measures, such as handouts to low-income households, tax cuts, or spending on social programs. The goal would be to increase consumption and investment.
—Brian Swint
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Influx of New Rental Apartments Hitting Already-Saturated Market
A historically high number of new multifamily apartments is expected to become available this year. This is amid a boom in rental unit construction and a real estate market where supply has outweighed demand for seven straight quarters. Vacancy rates continue to rise and rent growth is low.
- CoStar Group, a commercial real estate services and analytics firm, expects 520,000 new multifamily units to hit the rental market this year, the highest since the mid-1980s, Jay Lybik, CoStar’s national director of multifamily analytics, told Barron’s. Another 457,000 apartment rental units are expected next year.
- The rental market is grappling with how rapidly apartment prices rose early in the Covid-19 pandemic, broader inflation, and worries about a possible recession. Demand picked up in the second quarter, but not enough for the 140,000 units delivered, which pushed the national vacancy rate higher, Lybik wrote.
- Rents have risen the most from the same time last year in areas where there is less new construction, such as Cincinnati, Columbus, and Chicago. Rents have dropped the most in Austin, Las Vegas, and Phoenix, as developers rushed there to start building, Lybik said.
- The National Association of Home Builders will release its Housing Market Index for July on Tuesday. The Census Bureau will report June housing starts on Wednesday, and the National Association of Realtors will release June existing-home sales on Thursday.
What’s Next: Housing starts are expected to fall 9.6% in June from the prior month, to an annualized 1.48 million. Existing-home sales are also seen edging down to 4.2 million from 4.3 million.
—Shaina Mishkin and Janet H. Cho
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Extreme Weather Pressures Home Energy Bills, Disrupts Tourism
Excessive heat is bearing down on millions of people, from the U.S. to Europe and Japan, pressuring home energy bills and disrupting tourism. Another bout of severe weather in the Northeast on Sunday caused thousands of flight cancellations and delays in Boston, the New York City area, and Washington, D.C.
- Air temperatures were near 115 degrees Fahrenheit in parts of California, Nevada, and Arizona, the National Weather Service said. Italy, Spain, and Greece also recorded triple-digit temperatures. The Acropolis in Athens was temporarily shut due to the extreme heat.
- The National Energy Assistance Directors Association said home energy bills will climb 12% to an average of $578 this summer. The North American Electric Reliability Corporation said large portions of the U.S. could face blackouts.
- More than 1,700 flights were canceled Sunday, including hundreds at Newark Liberty International, John F. Kennedy, LaGuardia, and Boston Logan airports, according to FlightAware.com, and close to 10,000 flights were delayed. JetBlue Airways canceled 322, or 30% of its daily flights.
- Tourists are flocking to take pictures at Death Valley National Park on the California-Nevada border, long considered one of the lowest, hottest, and driest places on Earth. Temperatures were approaching 130 degrees. The record was 134 degrees in 1913.
What’s Next: U.S. climate envoy John Kerry is in Beijing through Wednesday, meeting with his Chinese counterpart, Xie Zhenhua. Kerry has said that China, the world’s top fossil-fuels emitter, should accelerate its carbon-reduction goals. China says it shouldn’t be subject to standards imposed on Western economies.
—Janet H. Cho
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Mission Impossible Disappoints as Movie Fans Await ‘Barbenheimer’
Tom Cruise’s Mission Impossible—Dead Reckoning Part One posted disappointing box office numbers for its opening weekend. The
Paramount
film brought in $80 million since its Wednesday opening, Comscore reported. Paramount had projected $90 million in sales from Wednesday, Bloomberg reported.
- Like Indiana Jones and the Dial of Destiny, the seventh installment of Mission Impossible cost just under $300 million to make. The two had similar sales over their weekend debuts. Worldwide, Mission’s sales reached $235 million, according to BoxOfficeMojo.
-
Walt Disney’s
Indiana Jones and the Dial of Destiny sold $12 million this weekend and has reached $145.4 million in domestic box office since its June 30 release, according to BoxOfficeMojo. Its worldwide total sales is now $302 million. -
Moviegoers are gearing up for the simultaneous release this Friday of two anticipated blockbusters: Barbie by
Warner Bros. Discovery
and Oppenheimer by
Comcast
-owned Universal Pictures. Some fans plan to see both on the same day or weekend, calling the phenomenon “Barbenheimer.” - Actors starring in Barbie, Oppenheimer, and other movies aren’t allowed to promote them because of the Hollywood strike by actors and writers. The Oppenheimer cast left the film’s U.K. premiere on Thursday. The red carpet part of the U.S. premiere has also been canceled.
What’s Next:Barbie is projected to take $155 million in the U.S. on its opening weekend, according to Boxoffice Pro, which projected Oppenheimer will rake in $57 million. Analysts tracked by Bloomberg expect theater sales this year to reach $9 billion, less than the $11 million annually before the Covid-19 pandemic.
—Liz Moyer
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Elon Musk Rolls out Tesla’s Cybertruck Amid Competition
Tesla
marked a milestone over the weekend as the first Cybertruck rolled off the factory line in Texas nearly four years after CEO Elon Musk introduced the prototype. Since that introduction, several competitors have rolled out electric pickups before Musk, including
Ford Motor’s
F-150 Lightning.
- Unlike competitors, which have made EV trucks to resemble their gas-powered cousins, Musk’s Cybertruck design has a triangular stainless-steel shell. It was supposed to cost roughly $40,000 to $70,000, a price set in pre-inflation 2019.
- Musk said earlier this year that he didn’t expect the electric pickup to be a meaningful part of Tesla’s lineup until 2024, and in April he said Cybertruck deliveries could start in the third quarter of this year.
- Wall Street expects 10,000 Cybertrucks to be delivered in 2023 and fewer than 100,000 in 2024. The Cybertruck might be harder to make, but Tesla produced roughly 84,000 Model Ys in 2020, the first year of that vehicle. It made more than 400,000 Ys in 2021.
- Separately, Americans bought a record 295,255 battery-powered EVs in the second quarter, according to Cox Automotive. That’s up 50% from last year’s second quarter, fueled by lower prices, federal tax incentives and more models to choose from.
What’s Next: There’s not such good news is another part of Musk’s business empire. He said Saturday Twitter, the social media platform he owns, still has negative cash flow because advertising revenue dropped 50%, despite saying in March he hoped it would be positive by June. Musk tweeted that Twitter needs to reach positive cash flow “before we have the luxury of anything else.”
—Liz Moyer and Al Root
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MarketWatch Wants to Hear From You
Starting next year, employers that offer retirement plans to workers will be able to offer them an emergency savings account as well. How will the accounts work?
A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected].
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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
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