Banks Slump 13% Ahead of Profit Gains of Up to 20%

Dear readers,

Oil above $105 a barrel on reports of possible US strikes on Iran is weighing on markets, and yields remain near multi-year highs. Into this backdrop step the big banks, which report next Tuesday, October 13. Their shares have already lost much of investors’ confidence.

Below, we look at the banks, a consumer-goods giant that disappoints despite good numbers, a pharma stock with a quiet tailwind, a quantum stock with a government contract, and a crypto exchange building for the long haul.

Big Banks: Profits Grow, Share Prices Retreat

Third-quarter earnings at the largest banks are expected to rise by up to 20% from a year earlier. The stocks are behaving as if the opposite were true. The KBW Bank Index is still 13% below its August peak close, so investors have priced in a good deal of bad news.

JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo report on October 13. Morgan Stanley and Bank of America follow on October 14. LSEG expects JPMorgan to earn $5.94 per share, against $5.07 a year ago. The bank has guided to investment banking fees and markets revenue up in the “mid-to-high teens” percentage range for the quarter. The stock was last quoted at just over €290, a little more than 8 percent below its mid-August high.

Goldman Sachs has been hit harder. The shares are about 12 percent below their level of 30 days ago and just over 20 percent below their July high. Bank of America CEO Brian Moynihan has already lowered expectations.

He said the bank’s investment banking fees will likely fall by more than 10% in the third quarter from a year earlier, while trading revenue should be roughly flat. The market’s investment banking decline is about 10%, and Moynihan said Bank of America would be down “probably a bit more than that.”

So the question is less about profit growth than about the outlook. Higher yields slow M&A and loan growth and raise funding costs. Insider buying in the US financial sector fell to a 23-year low in the third quarter.

Anyone buying ahead of the numbers is betting on positive signals from investment banking. The better bet is probably to wait for the executives’ comments first. Regional banks such as Truist and Regions Financial do not report until October 16, and analysts have recently cut their price targets.

PepsiCo: Revenue Better, Earnings Outlook Halved

PepsiCo posted third-quarter revenue of $25.27 billion, up 5.6 percent from a year earlier and above the consensus of $24.95 billion. Snack volume grew 4 percent. But the company also halved its full-year earnings-per-share growth forecast.

The initial market reaction was mixed. The stock rose about 2 percent in US premarket trading. In German trading it stands at just over €111, after touching a new 52-week low at just over €110 in early trading. It is down about 9 percent year to date.

Investors seem to reward the fact that demand is holding up. Margins are suffering, though, and that is where the skepticism sits. A low share price alone does not make PepsiCo a bargain while the profit forecast is shrinking.

Should investors sell immediately? Or is it worth buying Bank of America?

Amgen: The Unnoticed Winner

While chip stocks fill the headlines, Amgen has been quietly climbing. The stock is up about 30 percent year to date and trades at around €365. RBC raised its price target on Thursday from $400 to $430 and confirmed “Outperform.” Cantor Fitzgerald stays at “Neutral” with a target of $440.

The fundamentals support the picture. Second-quarter revenue grew 10 percent to $10.1 billion. The heart drug Repatha rose 37 percent, and the cancer drug Imdelltra more than doubled. Adjusted earnings per share rose 4 percent to $6.29. There is also hope for MariTide, which is in Phase 3 trials. Still, the analyst consensus is only “Hold,” a sign that the stock has already received a lot of credit in advance.

The market is rewarding the sector as a whole. AbbVie hit a record high of $274.94 on Wednesday after two FDA designations for a cancer drug were announced. With oil prices spiking and yields high, defensive growth stocks like these can serve as an anchor.

IonQ and IBM: DARPA Picks Its Candidates

The US research agency DARPA has advanced IonQ, IBM, Atom Computing and Diraq to the final stage of its Quantum Benchmarking program. They join Microsoft and PsiQuantum. The goal is fault-tolerant quantum computers at practical utility scale by 2033.

For IonQ, the stage comes with an agreement worth up to $300 million to test its “Superion” systems through 2029. The full amount is not guaranteed. The stock trades at around €37 and is down about 6 percent year to date, though over twelve months it is still down 41 percent.

Opinions diverge widely. The consensus of all analysts sees an average price target of $71, while Morgan Stanley stays at “Hold” with a target of $49. The bank’s reasoning is that the DARPA stage validates the architecture but only starts the independent hardware tests.

IBM plans to deliver its first fault-tolerant computer, “Quantum Starling,” in 2029. Its stock is down about 24 percent year to date. Anyone betting on quantum is buying a wager on 2029 and later, not numbers for tomorrow.

Coinbase: Infrastructure Instead of Price Fireworks

Yesterday’s newsletter named $82,000 to $83,000 as Bitcoin’s next holding zone, and the price has now slipped to around $82,000. US spot Bitcoin ETFs saw outflows of about $485 million on Wednesday, the largest daily outflow since June. Coinbase is not untouched. The stock stands at just under €157, down a good 20 percent year to date and far below its high from a year ago.

The company is nonetheless building out its infrastructure. The integration of the options exchange Deribit is complete, and options via the institutional platform Coinbase Prime will launch in the coming weeks.

Samsung is bringing a stablecoin function to 82 million US Galaxy devices at the end of October, and Coinbase holds the dollar stablecoin USDC in custody. Coinbase Pro is also expected to return by year-end. These are user and volume levers that work independently of the daily Bitcoin price, but they will show up in the numbers only over months.

The Takeaway

On Tuesday we will learn whether the banks justify the gloom, and the executives’ comments on investment banking and loan demand will matter more than the quarterly profit figures. Until then, the oil price and the Iran headlines will set the tone for the broader market. Investors who want to spread their bets will find stories in pharma and quantum that depend less on daily noise. In both, though, the payoff is a question of patience.

Best regards,
The StocksToday.com Editorial