Finance

Goldman Sachs will post a roughly $400 million pretax hit to third-quarter results as the bank continues to unwind its ill-fated consumer business.
CEO David Solomon said Monday at a conference that by unloading Goldman’s GM Card business, as well as a separate portfolio of loans, the bank would post a hit to revenues next month.
Solomon also said trading revenue for the quarter was headed for a 10% decline because of a tough year-over-year comparison and difficult trading conditions in August for fixed-income markets.

David Solomon, CEO of Goldman Sachs, during an interview for an episode of “The David Rubenstein Show: Peer-to-Peer Conversations” in New York on Aug. 6, 2024.
Jeenah Moon | Bloomberg | Getty Images

Goldman Sachs will post a roughly $400 million pretax hit to third-quarter results as the bank continues to unwind its ill-fated consumer business.
CEO David Solomon said Monday at a conference that by unloading Goldman’s GM Card business, as well as a separate portfolio of loans, the bank would post a hit to revenues when it reports results next month.

It is the latest turbulence related to Solomon’s push into consumer retail. In late 2022, Goldman began to pivot away from its nascent consumer operations, beginning a series of write-downs related to selling chunks of the business. Goldman’s credit card business, in particular its Apple Card, allowed rapid growth in retail lending, but also led to losses and friction with regulators.
Goldman is instead focusing on asset and wealth management to help drive growth. The bank was in talks to sell the GM Card platform to Barclays, The Wall Street Journal reported in April.
Solomon also said Monday that trading revenue for the quarter was headed for a 10% decline because of a tough year-over-year comparison and difficult trading conditions in August for fixed-income markets.

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Europe has at last realised it has a problem with economic growth. Duh. Can it now find a solution? A report published on September 9th by Mario Draghi, a former president of the European Central Bank and prime minister of Italy, and the continent’s unofficial chief technocrat, is an attempt to do just that. Over almost 400 pages, Mr Draghi outlines a plan to overhaul Europe’s economy. Ursula von der Leyen, the recently re-elected head of the European Commission, is keen to act on his advice. Even Elon Musk, owner of Tesla and X, as well as a frequent opponent of the EU, has applauded his “critique”. More

Huawei has received more than 2.7 million pre-orders for its new, trifold smartphone, its website showed on Monday.
The Chinese company began pre-orders for its Mate XT midday on Saturday.
That was more than two days ahead of Apple’s planned iPhone 16 launch in the early morning Tuesday Beijing time.

Huawei is planning to release a three-fold smartphone on Sept. 10, just hours after Apple’s scheduled new iPhone launch.
Cfoto | Future Publishing | Getty Images

BEIJING — Huawei has received more than 2.7 million pre-orders for its trifold smartphone, its website showed on Monday.
The Chinese company began pre-orders for its Mate XT midday on Saturday. That was more than two days ahead of Apple’s planned iPhone 16 launch early morning Tuesday Beijing time.

Huawei had previously announced it would launch a new product at 2:30 p.m. on Tuesday. The company has yet to share a price for the Mate XT. The device is set to officially begin sales on Sept. 20.
Apple fell out of the list of top five smartphone vendors in China in the second quarter, according to Canalys. It was the first time that domestic players held all five spots, the firm said.

Huawei ranked fourth by market share with 10.6 million smartphones shipped, according to Canalys.
The firm only shared shipments for the top five vendors. Apple shipped 10 million phones in the first quarter.
Huawei already sells folding and flip phones, as do its Chinese competitors. Apple has yet to expand into those categories. More

The U.S. Federal Reserve can afford to make a jumbo 50 basis points rate cut next week without spooking markets, according to one analyst.
Michael Yoshikami, CEO of Destination Wealth Management, said Monday that a deeper cut would demonstrate that the central bank is ready to act without signalling deeper concerns.
Policymakers are widely expected to lower rates when they meet on Sept. 17-18, but the extent of the move remains unclear.

Federal Reserve Chairman Jerome Powell.
Andrew Harnik | Getty Images

The U.S. Federal Reserve can afford to make a jumbo 50 basis point rate cut next week without spooking markets, an analyst has suggested, as opinion on the central bank’s forthcoming meeting remains hotly divided.
Michael Yoshikami, CEO of Destination Wealth Management, said Monday that a bigger cut would demonstrate that the central bank is ready to act without signaling deeper concerns of a broader downturn.

“I would not be surprised if they jumped all the way to 50 basis points,” Yoshikami told CNBC’s “Squawk Box Europe.”
“That would be considered, on one hand, a very positive sign the Fed is doing what is needed to support jobs growth,” he said. “I think the Fed at this point is ready to get out ahead of this.”
His comment follow similar remarks Friday from Nobel Prize-winning economist Joseph Stiglitz, who said the Fed should deliver a half-point interest rate cut at its next meeting, contending that it went “too far, too fast” with its previous policy tightening.

Policymakers are widely expected to lower rates when they meet on Sept. 17-18, but the extent of the move remains unclear. A disappointing jobs print on Friday stoked fears of a slowing labor market and briefly tipped market expectations toward a larger cut, before shifting back.
Traders are now pricing in around a 75% chance of a 25 bps rate reduction in September, while 25% are pricing in a 50 bps lowering, according to the CME Group’s FedWatch Tool. A basis point is 0.01 percentage point.

Yoshikami acknowledged that a larger cut could reinforce fears that a “recessionary ball” is coming, but he insisted that such views were overblown, noting that both unemployment and interest rates remain low by historical levels and company earnings have been strong.
He said the recent market sell-off, which saw the S&P 500 notch its worst week since March 2023, was based on “massive profits” accrued last month. August saw all the major indexes post gains despite a volatile start to the month, while September is traditionally a weaker trading period.

Thanos Papasavvas, founder and chief investment officer of ABP Invest, also acknowledged a “rise in concern” around a potential economic downturn.
The research firm recently adjusted its probability of a U.S. recession to a “relatively contained” 30% from a “mild” 25% in June. However, Papasavvas said that the underlying components of the economy — manufacturing and unemployment rates — were “still resilient.”
“We’re not particularly concerned that we’re heading into a U.S. recession,” Papasavvas said Monday on “Squawk Box Europe.”
The perspectives stand in stark contrast to other market watchers, such as economist George Lagarias, who told CNBC last week that a bumper rate cut could be “very dangerous.”
“I don’t see the urgency for the 50 [basis point] cut,” Forvis Mazars’ chief economist told CNBC’s “Squawk Box Europe.”
“The 50 [basis point] cut might send a wrong message to markets and the economy. It might send a message of urgency and, you know, that could be a self-fulfilling prophecy,” Lagarias added. More

China on Monday reported its consumer price index rose by 0.6% year on year in August, missing expectations as costs of transportation and home goods, and rents declined.
The consumer price index was forecast to have climbed 0.7% year on year in August, according to a Reuters poll.
The producer price index fell by 1.8% year on year in August, more than the estimated 1.4% decline as per the Reuters poll.

egetable prices in China have risen significantly this summer, with analysts pointing to high temperatures and frequent rainfall as the main reasons.
Vcg | Visual China Group | Getty Images

BEIJING — China on Monday reported its consumer price index rose by 0.6% year on year in August, missing expectations as transportation and home goods prices, as well as rents declined.
The CPI was estimated to have climbed 0.7% year on year in August, according to a Reuters poll.

Food prices climbed by 2.8% year on year in August, the first positive print since June 2023, according to Wind Information data. Pork prices surged by 16.1% in August, while vegetable prices climbed by 21.8%.
Pork, a food staple in China, has an outsized weighting in the country’s consumer price index. Wang Yifan, agricultural analyst at Nanhua Futures, said that breeding cycles indicate pork prices can rise further in September and October, but will face pressure during the rest of the year.
Core-CPI, which strips out food and energy prices, climbed by 0.3% in August from a year ago, a slower rise for a second-straight month.

The consumer price index rose by 0.4% in August from July, also missing Reuters estimates of a 0.5% growth.
Consumer prices in China have remained subdued amid lackluster domestic demand since the pandemic.

China’s former central bank head Yi Gang said at a conference on Friday that the country needed to focus on “fighting the deflationary pressure.” He forecast the consumer price index would be slightly above zero by the end of the year.
Retail sales rose by just 2.7% in July from a year earlier. Retail sales and industrial data for August are due out Saturday.
“The fiscal policy stance needs to become more proactive in order to prevent the deflationary expectations from becoming entrenched, in my view,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note.

Producer prices fall more than expected

The producer price index fell by 1.8% year on year in August, more than the estimated 1.4% decline as per the Reuters poll.
Oil, coal and other fuel industries reported a 3% year-on-year drop in prices, reversing a 4.3% increase in July.
The downward pressure on the producer price index remains large due to insufficient domestic demand and the drag from real estate, said Bruce Pang, chief economist and head of research for Greater China at JLL.
Within the consumer price index, he noted that major categories outside of food, tobacco and alcohol posted declines in August from the prior month, indicating the need for greater efforts to boost domestic demand.
— CNBC’s Anniek Bao contributed to this report. More

Exchange-traded fund inflows have already topped monthly records in 2024, and managers think inflows could see an impact from the money market fund boom before year-end.
“With that $6 trillion plus parked in money market funds, I do think that is really the biggest wild card for the remainder of the year,” Nate Geraci, president of The ETF Store, told CNBC’s “ETF Edge” this week. “Whether it be flows into REIT ETFs or just the broader ETF market, that’s going to be a real potential catalyst here to watch.”

Total assets in money market funds set a new high of $6.24 trillion this past week, according to the Investment Company Institute. Assets have hit peak levels this year as investors wait for a Federal Reserve rate cut.
“If that yield comes down, the return on money market funds should come down as well,” said State Street Global Advisors’ Matt Bartolini in the same interview. “So as rates fall, we should expect to see some of that capital that has been on the sidelines in cash when cash was sort of cool again, start to go back into the marketplace.”
Bartolini, the firm’s head of SPDR Americas Research, sees that money moving into stocks, other higher-yielding areas of the fixed income marketplace and parts of the ETF market.
“I think one of the areas that I think is probably going to pick up a little bit more is around gold ETFs,” Bartolini added. “They’ve had about 2.2 billion of inflows the last three months, really strong close last year. So I think the future is still bright for the overall industry.”
Meanwhile, Geraci expects large, megacap ETFs to benefit. He also thinks the transition could be promising for ETF inflow levels as they approach 2021 records of $909 billion.

“Assuming stocks don’t experience a massive pullback, I think investors will continue to allocate here, and ETF inflows can break that record,” he said.
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Big banks are jumping headfirst into the AI race. Over the past year, Wall Street’s largest names — including Goldman Sachs , Bank of America , Morgan Stanley , Wells Fargo to JPMorgan Chase — ramped up their generative artificial intelligence efforts with the aim of boosting profits. Some are striking deals and partnerships to get there quickly. All are hiring specialized talent and creating new technologies to transform their once-stodgy businesses. The game is still in its early innings, but the stakes are high. In his annual shareholder letter, JPMorgan CEO Jamie Dimon compared artificial intelligence to the “printing press, the steam engine, electricity, computing, and the internet.” The banks that can get it right should increase productivity and lower operational costs — both of which would improve their bottom lines. In fact, AI adoption has the potential to lift banking profits by as much as $170 billion, or 9%, to more than $1.8 trillion by fiscal year 2028, according to research from Citi analysts . Early-stage generative AI use cases are often for “augmenting your staff to be faster, stronger and better,” said Alexandra Mousavizadeh, co-CEO and co-founder of AI benchmarking and intelligence platform Evident Insights. “Over the course of the next 12 to 18 to 24 months, I think we’re going to see [generative AI] move along the maturity journey, going from internal use cases being put into production [to more] testing external-facing use cases.” Companies are only just starting to grasp the promise of this tech. After all, it was only following the viral launch of ChatGPT in late 2022 that the world outside of Silicon Valley woke up to the promise of generative AI. OpenAI’s ChatGPT, backed by Microsoft and enabled by Nvidia chips, sparked an investor stampede into anything AI. The AI trade also pushed corporate boardrooms in three ways: find use cases for the tech, strike partnerships to enable it, and hire specialized employees to build and support it. MS YTD mountain Morgan Stanley YTD AI use cases for key businesses Morgan Stanley was among the first on Wall Street to publicly embrace the technology, unveiling two AI assistants for financial advisors powered by OpenAI. Launched in September 2023, the AI @ Morgan Stanley Assistant gives advisors and their staff quick answers to questions regarding the market, investment recommendations, and various internal processes. It aims to free up employees from administrative and research tasks to engage more with their clients. Morgan Stanley this summer rolled out another assistant , called Debrief, which uses AI to take notes on financial advisors’ behalf in their client meetings. The tool can summarize key discussion topics and even draft follow-up emails. “Our immediate focus is on using AI to increase the time our employees spend with clients. This means using AI to reduce time-consuming tasks like responding to emails, preparing for client meetings, finding information, and analyzing data,” said Jeff McMillan, head of firmwide AI for Morgan Stanley. He made these comments in a statement emailed to CNBC last week. “By freeing up this time, our employees can focus more on building relationships and innovating.” In the long run, AI could help Morgan Stanley’s wealth business get closer to reaching management’s goal of more than $10 trillion in client assets . In July, the firm reported client assets of $7.2 trillion. To be sure, McMillan said in June it would take at least a year to determine whether the technology is boosting advisor productivity. If it does, that would welcomed news for shareholders after Morgan Stanley’s wealth segment missed analysts’ revenue expectations in the second quarter . WFC YTD mountain Wells Fargo YTD It’s not just Morgan Stanley. Our other bank holding Wells Fargo has its own virtual AI assistant. Dubbed Fargo , it helps retail customers get answers to their banking questions and execute tasks such as turning on and off debit cards, checking credit limits, and offering details for transactions. Fargo, powered by Google Cloud’s artificial intelligence, was launched in March 2023. For a large money center bank like Wells Fargo — one that’s historically catered to Main Street — the Fargo assistant could bolster the bank’s largest reporting segment. The consumer, banking and lending unit in the second quarter accounted for roughly 43% of the $20.69 billion booked in companywide revenue. Striking AI deals, landing partnerships None of this would be possible without partnerships. Big banks have tapped startups and tech behemoths alike for access to their large language models (LLMs) to build their own AI products. In addition to Morgan Stanley’s OpenAI deal and Wells Fargo’s ties with Google, Deutsche Bank also partnered with Club name Nvidia in 2022 to help develop apps for fraud protection . BNP Paribas announced on July 10 a deal with Mistral AI — often seen as the European alternative to OpenAI — to embed the company’s LLMs across its customer services, sales and IT businesses. Shortly after that, TD Bank Group signed an agreement with Canadian AI unicorn Cohere to utilize its suite of LLMs as well. “We watch out for these [deals] because that means they are onboarding a lot of that capability,” Evident’s Mousavizadeh said. Big AI hires for top Wall Street firms Banks have also had to do a lot of hiring to make their AI dreams come true — poaching swaths of data scientists, data engineers, machine learning engineers, software developers, model risk analysts, policy and governance managers. Despite layoffs across the banking industry, AI talent at banks grew by 9% in the last six months, according to July data from Evident , which tracks 50 of the world’s largest banks. That was double the rate of growth seen in total headcount across the sector. Mousavizadeh said that one of the major “characteristics of the leading banks in AI is that they’re not stopping hiring. The leading banks are the [ones] that are hiring the most AI talent.” In July, Wells Fargo named Tracy Kerrins as the new head of consumer technology to oversee the firm’s new generative AI team. And Morgan Stanley’s McMillan was promoted to AI head in March after serving as a tech executive in the wealth division. He’s helped oversee Morgan Stanley’s OpenAI-related projects. JPMorgan last year also appointed Teresa Heitsenrether as its chief data and analytics officer in charge of AI adoption. Bottom line The more we see these firms spend and invest in AI talent, the more serious they appear to be about the future of the nascent tech. We don’t expect these third-party partnerships, new use cases, and slew of hires to create exponential returns overnight. However, As long as these costs don’t outweigh return on investment (ROI), we’re happy with Wells Fargo and Morgan Stanley’s moves to innovate. “We’re very much in the foothills of this, and we’re going to see much more ROI generated off the AI use cases in 2025,” Mousavizadeh said. “But, I think you’re going to see a real tipping point in 2026.” (Jim Cramer’s Charitable Trust is long NVDA, WFC, GOOGL, MSFT, MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Pedestrians walk along Wall Street near the New York Stock Exchange (NYSE) in New York, US, on Tuesday, Aug. 27, 2024.
Bloomberg | Bloomberg | Getty Images

Big banks are jumping headfirst into the AI race. More

Employers added 142,000 jobs in August, less than expected. The unemployment rate declined to 4.2%, according to the Bureau of Labor Statistics jobs report.
The U.S. job market has slowed considerably over the past year or so. The Federal Reserve has raised interest rates to tame inflation.
If the labor market continues to cool at this rate, the economy would likely be at risk of recession, economists said.

A “Now Hiring” sign is seen at a FedEx location on Broadway on June 07, 2024 in New York City.
Michael M. Santiago | Getty Images

Why there’s ‘slowing momentum’

Employers added 142,000 jobs in August, the Bureau of Labor Statistics reported Friday, a figure that was lower than expected.
The good news: That figure is an increase from the 89,000 jobs added in July. The unemployment rate also fell slightly, to 4.2% from 4.3% in July.

However, several metrics point to “slowing momentum” throughout the labor market, said Ernie Tedeschi, director of economics at the Yale Budget Lab and former chief economist of the White House Council of Economic Advisers under the Biden administration.
The current level of job growth and unemployment “would be fine for the U.S. economy sustained over many months,” he said. “Problem is, other data don’t give us confidence we are going to stay there.”
For example, average job growth was 116,000 over the past three months; the three-month average was 211,000 a year ago. The unemployment rate has also steadily risen, from 3.4% as recently as April 2023.

Employers are also hiring at their slowest pace since 2014, according to separate Labor Department data issued earlier this week.
Hiring hasn’t been broad-based, either: Private-sector job growth outside of the health-care and social assistance fields has been “unusually slow,” at a roughly 39,000 average over the past three months versus 79,000 over the past year and 137,000 over 2015 to 2019, according to Julia Pollak, chief economist at ZipRecruiter.
Workers are also quitting their jobs at the lowest rate since 2018, while job openings are at their lowest since January 2021. Quits are a barometer of workers’ confidence in their ability to find a new job.

Job-finding among unemployed workers is around 2017 levels and “continues to drift down,” Bunker said.
“There’s a very consistent picture that the strong labor-market momentum we saw in 2022 and 2023 has slowed considerably,” Tedeschi said.
Overall, data points “are not necessarily concerning or at recessionary levels yet,” he added. “[But] they are softer. They may be preludes to a recession.”

Why layoff data is a silver lining

However, there is some room for optimism, economists said.
Permanent layoffs — which have historically been “the soothsayer of recessions” — haven’t really budged, Tedeschi said.

Federal data for unemployment insurance claims and the rate of layoffs suggest employers are holding on to their workers, for example.
The recent gradual rise in unemployment is largely not attributable to layoffs, economists said. It has been for a “good” reason: a large increase in labor supply. In other words, many more Americans entered the job market and looked for work; they’re counted as unemployed until they find a job.

“Once we start seeing layoffs, the game is over and we are in a recession,” Tedeschi said. “And that has not happened at all.”
That said, the job hunt has become more challenging for job seekers than in the recent past, according to Bunker.

Relief from the Fed won’t come quickly

Federal Reserve officials are expected to start cutting interest rates at their upcoming meeting this month, which would take pressure off the economy.
Lower borrowing costs may spur consumers to buy homes and cars, for example, and for businesses to make more investments and hire more workers accordingly.

That relief likely wouldn’t be instantaneous but would probably take many months to wind through the economy, economists said.
Overall, though, the current picture is “still consistent with an economy experiencing a soft landing rather than plummeting into recession,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a note Friday. More