Consumer sentiment index up as inflation eases, plus the top takeaways from bank earnings
Yahoo Finance’s Julie Hyman breaks down the preliminary UMich consumer confidence reading for January, plus Alexandra Semenova joins the Live show to discuss key takeaways from Friday’s big bank earnings.
Video Transcript
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- Markets this morning. We've been continuing to keep a close eye on the US major averages as we're lower across the board here. That, combined with some economic data, that's just come out at 10:00 AM. They're taking a look at the US major averages down right now fractionally for the Dow, the S&P 500 and the NASDAQ. But to the breaking news, Julie.
- Yeah, the economic news actually good. 64.6 the reading on University of Michigan's consumer confidence. This is the first reading we get for January, the preliminary reading for January, and it is better than estimated and an increase over the prior month. Current conditions at 68.6, much better than estimated. But even expectations are better than estimated at 62.
So really interesting here. The projection for inflation a year from now is also coming down a little bit to 4% from 4.4% in the prior read. So, again, interesting here. A more positive read from consumer inflation, and is in line with-- some of the strategists and economists we've talked to said the consumer is actually OK for the moment. It's a question of what happens next.
- Yeah, certainly. With regard to this reading, the current reading is the lowest since April of 2021, but the survey of consumers director, Joanne Chu, also points out that this remains well above the 2.3% to 3% range that they've seen within the two years prior to the pandemic.
So that's some of the context on this, but the long run inflation expectations, they were little changed from December. And so, all of this considered, uncertainty both over inflation expectations and those measures remains high. They're pointing out as well changes in global factors in the months ahead may generate a reversal in some of those recent improvements they're noting here too.
- Yeah, well nut that stuck to me here, guys, quickly is just the current assessments of personal finances up 16%. Really, the highest rating in eight months. Very interesting considering. And I know the survey pointed to easing inflation, but we were talking all week long about egg price inflation, rent price inflation, health care price inflation. So to see that increase was very interesting, especially stacked alongside what looks to be a disappointing holiday shopping season for a lot of retailers.
- Yeah, but at the same time a lot of measures of inflation have eased, a lot of components of inflation have eased. Even as egg prices have gone up, some of the other protein prices have mitigated. And as we know, headline inflation was down a 1/10th of a percent month over month. So if people are watching like grocery prices, maybe that's, besides eggs, looks a little bit better.
- Or maybe they're just not eating eggs. Maybe they're skipping eggs.
- It also says in here it's also on the basis of higher income. So that is a factor as well, Sozz. So we're going to continue to watch these numbers. We also continue to watch what's going on with bank earnings this morning. "Yahoo Finance's," Alexandra Semenova, has been tracking all of the numbers here. What has stood out to you thus far?
ALEXANDRA SEMENOVA: Well, guys, is just passing through some of these results, listening to some of these earnings call, the general takeaway is that it was a really lackluster quarter for Wall Street's big banks, as we can see from the market reaction today. Of course, the big themes are that investment banking revenue was down substantially, net interest income was up, and net loss reserves were up. Of course, these big banks were setting aside more rainy day funds for potentially sour loans.
Let's start with JPMorgan. It is, of course, the largest consumer bank in the US by assets. So it's always a bellwether for how the economy is doing. And, of course, CEO, Jamie Dimon, is the most animated of bank CEOs. That was a really interesting call. The things that stood out to me was that $2.3 billion that they set aside for loan loss provisions. That amount was actually much higher than some of its peers, higher than Citibank and Bank of America.
They attributed it to more credit card usage, people racking up those credit card debt due to inflation. They also attributed to the fact that they now forecast a mild recession. So they put a lot of reserves aside for that. Still though, CEO, Jamie Dimon, continued to say that the consumer is in good shape for now.
Of course, people are eating away through those savings that they have allotted during the post-pandemic period. He did, however, point out a number of risks. The usual ones, as he highlighted in recent months, are continued worries about geopolitical tensions in Eastern Europe. The war in Ukraine, of course, quantitative tightening what the Fed will do. So he warned about that. That's why the stock is down today.
- Yeah, some of those warnings factoring into their modeling for a mild recession right now. What about Bank of America, Citi, Wells Fargo? What good nuggets were in there?
ALEXANDRA SEMENOVA: Yeah. So Citigroup's profit actually fell because of those higher loan loss provisions and because of the slowdown in deal-making. However, it did have its best ever quarter for trading revenue. Citi CEO, Jane Fraser, actually said, "That markets had the best fourth quarter in recent memory." Wells Fargo said that, "It took a big hit on a $3.7 billion settlement with the CFPB to settle allegations that it harmed 16 million people with deposit accounts, auto loans, and mortgages."
And then Bank of America posted a modest increase in profits. It really reaped the benefits of higher interest rates. The bank reported a boost in net interest income, as well as higher trading revenue, specifically on fixed income. Bank of America has actually been expanding its fixed income business. And an interesting thing said on the call is the CFO said that they have no plans for any massive job cuts.
That's, of course, different from what we're hearing from peers like Goldman Sachs, which is laying off more than 3,000 workers this week. And speaking of those job cuts, JPMorgan and Bank of America actually reported higher headcount. So really interesting to see that when we're hearing all this talk of Wall Street layoffs. They're actually still in hiring mode.
- A busy morning for you. Alexandra Semenova, thanks so much. Appreciate it.
