804.612.9700
Advisor Login Contact Us

EARNINGS SEASON COMMENCES FRIDAY

Fourth quarter earnings season will commence Friday with the release of Wells Fargo, Citicorp and JP Morgan’s results.  Net interest margin is expected to surge given the most aggressive Fed in forty years.  It is also expected the banks will add to loan loss reserves in anticipation of an increase in nonperforming assets later in the year if the largely forecasted recession does occur.

S & P 500 forecasted profit margins are still at lofty levels.  Is this realistic given monetary policy and inflationary pressures.  However perhaps the appropriate question to ask is whether a potential decline in margins is already factored into prices but not yet into analysts’ predictions given the tumultuous 2022 where all major asset groups posted double digit negative returns.

The markets were bifurcated yesterday as the technologies advanced on speculation the  Federal Reserve will slow its pace of rate hikes as inflation shows signs of cooling.  Whether or not that materializes anytime soon, the belief of such sent “growth issues” higher ahead of Thursday’s reading of December’s CPI.

Swap contracts are again suggesting the terminal fed funds rate to be lower than 5% even though several Fed officials reiterated yesterday—several of whom are regarded as doves—that the rate will be over 5% perhaps around the 5.25% range for “a considerable period of time.”

FRB Chair Powell speaks today.  While the Fed Chief’s remarks are not on monetary policy, Powell may make some comments to further cement the Fed’s attempts to remain ahead of inflationary expectations.

What will happen today?

Last night the foreign markets were down.  London was down 0.16%, Paris down 0.67% and Frankfurt down 0.43%.  China was down 0.21%, Japan up 0.78%  and Hang Seng down 0.27%.

Futures are nominally lower on a reassessment of hawkish Fed speak and potential comments from FRB Chair Powell.  The 10-year is off 8/32 to yield 3.57%.

Return To Index Page
Kent Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.