Finance

The New York Stock Exchange welcomes executives and guests of Cava in celebration of its initial public offering, June 15, 2023.

Check out the companies making headlines in extended trading.
H&R Block — The tax preparer rose nearly 5.9% after posting quarterly earnings per share of $2.05 that beat Wall Street’s expectations of $1.88, according to Refinitiv. H&R Block reported $1.03 billion in revenue, while analysts expected $1.01 billion. The company also increased its quarterly dividend 10.3% to $0.32 from $0.29 and raised its full-year guidance.

Cava — Shares of the Mediterranean restaurant chain advanced 4.3% after hours following a second-quarter earnings report that topped consensus estimates. The fast-casual chain posted $172.9 million in revenue, exceeding analysts’ expectations of $163.2 million, according to FactSet. Earnings per share came to $0.21, while analysts surveyed by FactSet had forecast a loss of $0.02.
AgEagle Aerial Systems — Shares climbed 3% after the bell following the company reporting a smaller loss per share in the second quarter than it did in the same quarter a year ago. AgEagle reported a loss of 5 cents per share, 2 cents less than in 2022. But the company reported a smaller quarterly revenue than a year ago at $3.3 million.
Mercury Systems — The defense stock dropped 10.4% after missing Wall Street expectations for the fiscal fourth quarter. Mercury reported profit of 11 cents per share, excluding items, on revenue of $263.2 million. Analysts surveyed by FactSet estimated 52 cents earned per share and revenue of $278.8 million for the quarter. The company’s full-year guidance similarly missed FactSet consensus forecasts.
Stride — Shares popped 8.9% after the educational technology stock delivered a better-than-expected report in its fiscal fourth quarter. GAAP earnings per share of $1.01 topped the consensus estimate from analysts polled by FactSet by 14 cents, while revenue of $483.5 million also exceeded the forecast $460.7 million. More

Neel Kashkari, President and CEO of the Federal Reserve Bank of Minneapolis, speaks during an interview with Reuters in New York City, New York, May 22, 2023.
Mike Segar | Reuters

Minneapolis Federal Reserve President Neel Kashkari favors getting tougher on regional banks, following a crisis earlier this year that he said may not be over.
Asked during a town hall whether he agrees with proposals setting higher capital requirements for banks with more than $100 billion in assets, the central bank official said, “My own personal opinion is it doesn’t go far enough. I think it’s a step in the right direction, but I would like to go significantly further.”

Regional bank shares fell as Kashkari spoke. The SPDR S&P Regional Banking ETF (KRE) was off 2.4% around midday.
The architect of the Troubled Asset Relief Program that helped bail out banks during the 2008 financial crisis, Kashkari said that if the Fed has to keep raising interest rates, it could cause more problems for smaller banks.
At the root of the crisis was duration risk. A crisis of confidence forced some banks to liquidate assets to meet withdrawal demand. Those banks holding longer-dated Treasurys faced capital losses as rates went up and bond prices fell.
Should the Fed have to keep raising rates, that could affect banks in the same situation. Kashkari did not indicate if he thought the Fed was positioned for more rate hikes, but he noted that “we’re a long way away from cutting rates.”
“Right now it seems like things are quite stable, that banks have gotten through this reasonably well,” he said. “Now, the risk is that if inflation is not completely under control, and that we have to raise rates further from here, to bring it down, that they might face more losses than they currently face today. And these pressures could flare up again in the future.”
Referring to the issues in March that took down Silicon Valley Bank and others, Kashkari replied “all of the above” when asked whether it was higher interest rates or bank mismanagement that caused the failures. More

A man wearing a mask walks past a Nvidia logo in Taipei, Taiwan.
Sopa Images | Lightrocket | Getty Images

Check out the companies making headlines in midday trading.
Banks — Major Wall Street banks slid during midday trading after CNBC reported Tuesday that Fitch Ratings may once again downgrade the health of the banking sector. Shares of Bank of America and JPMorgan Chase slid 2%, while Citigroup and Morgan Stanley each fell more than 1%. Regional banks also slid, with Citizens Financial Group falling more than 3%.

Cleveland-Cliffs — Shares of the steel company shed 2.7% as investors weighed the latest developments in potential consolidation in the industry. Cleveland-Cliffs’ stock jumped more than 8% on Monday after U.S. Steel announced that it was rejecting a takeover offer from its rival. Industrial conglomerate Esmark announced its own offer for U.S. Steel on Monday.
Discover Financial Services — Shares of the credit card issuer dropped 9% after the company announced late Monday that president and CEO Roger Hochschild will step down and John Owen will take over in the interim. The changes take effect immediately.
Hannon Armstrong Sustainable Infrastructure Capital — Hannon Armstrong Sustainable Infrastructure Capital rose 2.3% after Bank of America upgraded the renewable energy investment firm to buy. The Wall Street firm said Hannon Armstrong will likely get a boost from the Inflation Reduction Act.
Paramount Global — Paramount Global shares climbed 2% in midday trading. The Alliance of Motion Pictures & Television Producers, which represents companies including Paramount Global, reportedly offered screenwriters on strike a new deal that includes crediting humans as screenwriters, rather than artificial intelligence, according to a Bloomberg report citing people familiar with the discussions.
Homebuilders — A slew of homebuilding stocks gained Tuesday after regulatory filings revealed fresh positions from Warren Buffett’s Berkshire Hathaway during the second quarter. That included D.R. Horton and Lennar, last up about 2% and 1.5%, respectively. NVR shares added about 0.5%.

Nvidia — The artificial intelligence stock advanced 1.7% after UBS, Wells Fargo and Baird all raised their estimates for where they believe share prices will go in the next year. The stock climbed 7.1% Monday, regaining ground after dropping 8.6% last week.
Turnstone Biologics — The biotechnology stock added 1.96% in midday trading. Investment firm Piper Sandler initiated coverage of the stock earlier Tuesday with an overweight rating, while Bank of America began coverage of Turnstone, also on Tuesday, with a buy rating.
— CNBC’s Alex Harring, Jesse Pound, Tanaya Macheel, Pia Singh and Samantha Subin contributed reporting More

Fitch Ratings cut its assessment of the banking industry’s health in June, a move that analyst Chris Wolfe said went largely unnoticed because it didn’t trigger downgrades on banks.
But another one-notch downgrade of the industry’s score from AA- to A+ would force Fitch to reevaluate ratings on each of the more than 70 U.S. banks it covers, Wolfe told CNBC.
“If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions,” Wolfe said.

A Fitch Ratings analyst warned that the U.S. banking industry has inched closer to another source of turbulence — the risk of sweeping rating downgrades on dozens of U.S. banks that could even include the likes of JPMorgan Chase.
The ratings agency cut its assessment of the industry’s health in June, a move that analyst Chris Wolfe said went largely unnoticed because it didn’t trigger downgrades on banks.

But another one-notch downgrade of the industry’s score, to A+ from AA-, would force Fitch to reevaluate ratings on each of the more than 70 U.S. banks it covers, Wolfe told CNBC in an exclusive interview at the firm’s New York headquarters.
“If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions,” Wolfe said.
The credit rating firms relied upon by bond investors have roiled markets lately with their actions. Last week, Moody’s downgraded 10 small and midsized banks and warned that cuts could come for another 17 lenders, including larger institutions like Truist and U.S. Bank. Earlier this month, Fitch downgraded the U.S. long-term credit rating because of political dysfunction and growing debt loads, a move that was derided by business leaders including JPMorgan CEO Jamie Dimon.

This time, Fitch is intent on signaling to the market that bank downgrades, while not a foregone conclusion, are a real risk, said Wolfe.
The firm’s June action took the industry’s “operating environment” score to AA- from AA because of pressure on the country’s credit rating, regulatory gaps exposed by the March regional bank failures and uncertainty around interest rates.

The problem created by another downgrade to A+ is that the industry’s score would then be lower than some of its top-rated lenders. The country’s two largest banks by assets, JPMorgan and Bank of America, would likely be cut to A+ from AA- in this scenario, since banks can’t be rated higher than the environment in which they operate.
And if top institutions like JPMorgan are cut, then Fitch would be forced to at least consider downgrades on all their peers’ ratings, according to Wolfe. That could potentially push some weaker lenders closer to non-investment-grade status.
Shares of lenders including JPMorgan, Bank of America and Citigroup dipped in premarket trading Tuesday.

Hard decisions

For instance, Miami Lakes, Florida-based BankUnited, at BBB, is already at the lower bounds of what investors consider investment grade. If the firm, which has a negative outlook, falls another notch, it would be perilously close to a non-investment-grade rating.
Wolfe said he didn’t want to speculate on the timing of this potential move or its impact on lower-rated firms.
“We’d have some decisions to make, both on an absolute and relative basis,” Wolfe said. “On an absolute basis, there might be some BBB- banks where we’ve already discounted a lot of things and maybe they could hold onto their rating.”
JPMorgan declined to comment for this article, while Bank of America and BankUnited didn’t immediately respond to messages seeking comment.

Rates, defaults

In terms of what could push Fitch to downgrade the industry, the biggest factor is the path of interest rates determined by the Federal Reserve. Some market forecasters have said the Fed may already be done raising rates and could cut them next year, but that isn’t a foregone conclusion. Higher rates for longer than expected would pressure the industry’s profit margins.
“What we don’t know is, where does the Fed stop? Because that is going to be a very important input into what it means for the banking system,” he said.
A related issue is if the industry’s loan defaults rise beyond what Fitch considers a historically normal level of losses, said Wolfe. Defaults tend to rise in a rate-hiking environment, and Fitch has expressed concern on the impact of office loan defaults on smaller banks.
“That shouldn’t be shocking or alarming,” he said. “But if we’re exceeding [normalized losses], that’s what maybe tips us over.”
The impact of such broad downgrades is hard to predict.
In the wake of the recent Moody’s cuts, Morgan Stanley analysts said that downgraded banks would have to pay investors more to buy their bonds, which further compresses profit margins. They even expressed concerns some banks could get locked out of debt markets entirely. Downgrades could also trigger unwelcome provisions in lending agreements or other complex contracts.
“It’s not inevitable that it goes down,” Wolfe said. “We could be at AA- for the next 10 years. But if it goes down, there will be consequences.” More

The logo of Nvidia Corporation is seen during the annual Computex computer exhibition in Taipei, Taiwan May 30, 2017. 
Tyrone Siu | Reuters More

Retail sales rose by 2.5% in July from a year ago, below expectations for a 4.5% increase, according to analysts polled by Reuters.
Industrial production rose by 3.7% in July from a year ago, below the 4.4% increase analysts had expected.
Fixed asset investment rose by 3.4% for the first seven months of the year from a year ago, below the 3.8% forecast by the Reuters poll.

BEIJING — China reported July data that broadly missed expectations. The National Bureau of Statistics report also did not include the unemployment figure for young people, which has soared to record highs in recent months.
Retail sales rose by 2.5% in July from a year ago, below expectations for a 4.5% increase, according to analysts polled by Reuters.

Industrial production rose by 3.7% in July from a year ago, below the 4.4% increase analysts had expected.
Fixed asset investment rose by 3.4% for the first seven months of the year from a year ago, below the 3.8% forecast by the Reuters poll.
The urban unemployment rate ticked up to 5.3% in July from 5.2% in June.

We must intensify the role of macro policies in regulating the economy and make solid efforts to expand domestic demand, shore up confidence and prevent risks.

National Bureau of Statistics

Contrary to prior reports, the latest release did not break down unemployment by age. The age 16 to 24 category has seen unemployment far above the overall jobless rate, reaching a record high of 21.3% in June.
A spokesperson for the National Bureau of Statistics said the bureau is suspending the youth unemployment number release due to economic and social changes, and is reassessing its methodology.

On a year-to-date basis, real estate investment fell by 8.5% from a year ago as of July, a greater decline than as of June.

China’s massive real estate market has struggled after decades of debt-fueled, rapid growth.
Bloomberg | Bloomberg | Getty Images

Online retail sales of physical goods rose by 6.6% in July from a year ago, a sharp slowdown from double-digit increases in recent months, according to CNBC calculations of official data.
Within retail sales, catering saw the biggest increase of 15.8%, while sports and entertainment products saw a 2.6% year-on-year increase. Big-ticket items such as autos and home appliances saw sales declines in July from a year ago.
Jewelry saw sales drop by 10% during that time.
Retail sales posted the slowest growth since a decline in December, according to official data.
The statistics bureau on Tuesday released retail sales from services for the first time — showing a 20.3% increase for the first seven months of the year from a year ago, pointed out Bruce Pang, chief economist and head of research for Greater China at JLL.
He added that some services sector spending, especially in tourism, isn’t captured by the official data because it looks at businesses operating above a certain scale.
The bureau did not release monthly figures or a monetary amount for retail sales of services.

The statistics bureau noted an “intricate and complicated” situation overseas and domestically, and “insufficient” domestic demand.
“We must intensify the role of macro policies in regulating the economy and make solid efforts to expand domestic demand, shore up confidence and prevent risks,” the bureau said in an English-language release.

Slowing growth, deflation concerns

Domestic demand has remained muted outside of summer tourism. Imports fell by 12.4% year-on-year in July and have mostly declined each month from the same period in 2022.
The consumer price index fell in July, adding to growing worries about deflation.
However, core CPI, which strips out food and energy prices, actually posted its fastest increase in July since January. Factory activity in July picked up to its highest since March, despite a continued decline.

Real estate worries

Weighing on the economy is an ongoing slump in the massive real estate sector. Property market troubles have come to the forefront again with developer Country Garden now on the brink of default.
When asked Tuesday about Country Garden and the real estate slump, statistics bureau spokesperson Fu Linghui said those events have affected market expectations.
But he described the real estate sector overall as being in a period of “adjustment” and that the current “phase” would pass as policy changes took effect. That’s according to a CNBC translation of his Mandarin-language remarks.
Top leaders in late July signaled a shift away from its crackdown on real estate speculation. Authorities have announced a raft of measures to boost consumption, private sector investment and foreign investment.

Read more about China from CNBC Pro

Earlier on Tuesday, the People’s Bank of China unexpectedly cut a key interest rate called the medium-term lending facility (MLF) — to 2.50% from 2.65%.
The last time the central bank cut by more than 10 basis points was in April 2020, according to Larry Hu, chief China economist at Macquarie.
“To be sure, cutting rate is far from enough. The biggest issue in the Chinese economy right now is the property sector,” Hu said.
“The property sector is at a critical juncture and the key concern is the downward spiral between sales and confidence,” he said. “Therefore, it’s hard for individual developers to save themselves. Policy is the only game changer for now.”
So far the overall approach to additional stimulus has been cautious, especially in real estate.
“Beijing has already done some things to ease the tensions in the property sector, but it has been too slow and too little, in our view,” Ting Lu, chief China economist at Nomura said in a note Monday.
“We believe that at some point in time Beijing will be compelled to take more measures to stem the downward spiral.” More

Former Goldman Sachs CEO Lloyd Blankfein pushed back on a report saying he had offered to return to the firm to help current CEO David Solomon.
When asked if he would return to helm Goldman, as CEOs at Disney and Starbucks have done in recent years, Blankfein laughed and said it never came up in conversation.

Former Goldman Sachs CEO Lloyd Blankfein said he couldn’t imagine returning to his old firm, disputing a news report that said Blankfein offered to return in some capacity.
The New York Times piece “misquoted” the former executive, Blankfein told CNBC Monday in a phone conversation.

The Times reported Friday that Blankfein told his successor, David Solomon, in a June phone call that he was growing impatient with the firm’s progress. He could return to help their efforts, the Times reported.
“My conversation with him was, I offered to be helpful,” said Blankfein, who expressed support for Solomon. “I never used the word ‘return’.”
A New York Times representative didn’t immediately return a request for comment.
Solomon, who took over from Blankfein in October 2018, has been under fire for months for an ill-fated consumer banking effort. Current and former Goldman executives have leaked damaging details to the press about losses tied to the strategy, as well as embarrassing anecdotes about Solomon’s leadership style and DJ hobby.
When asked if he would return to helm Goldman, as CEOs at Disney and Starbucks have done in recent years, Blankfein laughed and said it never came up in conversation.

“I can’t imagine returning to the firm,” Blankfein said. “I think my days working 100-hour weeks are over.”
Blankfein then said he couldn’t speak further as he was in the midst of one of his retirement pursuits — playing a round of golf. More

A Discover Financial Services credit card.
Scott Eelis | Bloomberg | Getty Images

Check out the companies making headlines after the bell.
Discover Financial Services — The financial services stock fell more than 5% after announcing the resignation of its CEO. The board announced that Roger Hochschild would step down from the position, effectively immediately, and appointed John Owen as interim CEO and president.

Homebuilding stocks — Homebuilders D.R. Horton, Lennar and NVR rose in extended trading after regulatory filings revealed Warren Buffett’s Berkshire Hathaway added new positions in the stocks during the second quarter. Lennar and NVR added more than 1% each, while D.R. Horton rose 2.7%.
Getty Images — Shares of the content creation company tumbled about 15% in extended trading after it issued preliminary second-quarter results. Getty Images posted a loss of 1 cent per share, compared with the 9 cents per share earned in the year-ago period. Revenue came in at $225.7 million, down 3.3% from the prior year.
— CNBC’s Darla Mercado contributed reporting. More