Finance

Investors may want to keep the antacid nearby.Long-term market bull Tony Dwyer sees near-term turbulence in connection with his “summer of indigestion” call. So, he’s encouraging investors to resist making any big moves right now.”We’ve had one heck of a run. It’s been an excessive run in the indices,” the Canaccord Genuity chief market strategist told CNBC’s “Trading Nation” on Tuesday. “Typically when it’s this kind of indigestion beneath the surface of the market, it eventually comes out into the indices themselves.”The major indexes just broke a two day win streak. But the S&P 500 and Nasdaq hit all-time highs during Tuesday’s session. Plus, the Dow is off just 0.58% from its record high.It may be hard for some investors to swallow, but Dwyer believes a summer setback is virtually unavoidable. He points to a period of transition in monetary policy, fiscal policy, the economy and earnings.”Everybody is talking about peak everything. But that’s what happens at this point of an economic recovery,” said Dwyer. “It’s what happened in 2004. It’s what happened in 2010.”Dwyer has been sitting on the sidelines for months due to the backdrop. He downgraded the market to neutral in April.”We’ve been in the summer of indigestion really since the end of March when rates peaked,” he said. “Even though the S&P 500 and the Nasdaq are making new daily highs, the participation in them is much lower.”But Dwyer sees a significant dip as a major buying opportunity.”The summertime of indigestion is going to create year-end opportunities,” said Dwyer. “We look to add our exposure back into the market from a neutral position on even more of this indigestion.”‘You just want to wait for an opportunity’Dwyer plans to pounce on stocks again on broad market weakness.”You just want to wait for an opportunity,” he noted. “Buy into those areas that are exposed to an economic recovery.”Tops on his list: Financials, industrials, materials and energy.”They were all really seeing excessive runs to the upside,” he said. “You’ve given back all of the relative performance gain in those four sectors over the last few weeks.”Dwyer expects more weakness during the dog days of summer. However, he expects a dip to set the stage for a strong bullish run into year end.”Last summer, we were very positive on the economic recovery theme and pulled in our horns on that in mid-April,” Dwyer said. “[Now] You don’t want to get too positive and you don’t want to get too negative.”Disclaimer More

BANK BOSSES were full of good cheer as they reported their second-quarter earnings on July 13th and 14th. “The consumer…their house value is up, their stocks are up, their incomes are up, their savings are up…they’re raring to go,” said Jamie Dimon, the boss of JPMorgan Chase, when analysts asked about the risk that economic growth might slow in the coming months. David Solomon, the chief executive of Goldman Sachs, sounded upbeat when asked if an executive order from the White House seeking to increase competition among businesses might cool feverish dealmaking activity. “I’m encouraged by the fact that our backlog levels remain extremely high…A lot of that feels like it will be sustained.” Jane Fraser, the boss of Citigroup, expressed a similar sentiment, telling analysts “We have a fabulous pipeline.”For an entire year now America’s banks have enjoyed a profits bonanza. Investment banks, which issue equity and debt for companies and make markets in stocks and bonds, have reaped bumper profits as trading activity has boomed. Retail banks took an early hit as they wrote down loan values for expected losses in early 2020. But they have since been able to gradually revise loan values back up, first as stimulus helped customers stay afloat and then as the economy began to reopen.Banks’ earnings in the second quarter of this year fit the recent trend well. Total profits at five big firms—Bank of America, Citigroup, Goldman, JPMorgan and Wells Fargo—came to a meaty $39bn, five times their level in the second quarter of last year, and around 40% higher than average quarterly profit in 2018 and 2019 (see chart). JPMorgan released a handsome $3bn of loan-loss provisions as profits, and Bank of America added back $2.2bn. After a hectic first quarter, trading activity slowed at Citi, Goldman and JPMorgan. But frenetic dealmaking meant that investment-banking revenues grew robustly; fees at JPMorgan, for instance, rose by 25% on the year. (Morgan Stanley, another big bank, was due to report on July 15th after The Economist went to press.)Early on in the pandemic, bank bosses had downplayed their windfalls. Retail bankers emphasised the uncertainty around loan repayment. Most bosses were aware that any boon from bumper trading earnings was likely to be undone by loan losses as millions of workers were laid off. They also warned that their investment-banking revenues were certain to “normalise” soon, as unusually high trading, issuance and deal activity slowed down.This quarter, however, bosses threw caution to the winds. The health of the American consumer is apparent in their credit-card habits, said Brian Moynihan, the boss of Bank of America. Repayments remain unusually high—customers are not accruing debt—even as they report mammoth growth in spending, up by 40% year-on-year and 22% on the first half of 2019. As for investment banking, Mr Solomon pointed to the pandemic-led acceleration in companies’ digital strategies as a potentially lasting driver of their lucrative mergers and acquisitions business.Whether that rosy confidence is well-placed or not remains to be seen. High prices and supply bottlenecks could risk slowing America’s economic recovery. Many banks reported that their own expenses, especially wages, were creeping up. Several stimulus programmes, including generous unemployment benefits and moratoriums on evictions and foreclosures, are due to unwind in the second half of 2021; without them, Americans’ finances may start to look less solid.Nor has the pandemic been all about tailwinds for banks’ profits. Lower interest rates, slashed to zero by the Federal Reserve, are dragging down the income they make on interest. Bank of America’s net interest income, for example, fell from $10.8bn in the second quarter of 2020 to $10.2bn in the same period this year.If moves in share prices are anything to go by, then investors are less bullish about banks’ futures than executives appear to be. Although profits at both JPMorgan and Goldman beat expectations, their share prices still closed nearly 2% lower on the day they reported results (they have since regained some of those losses). For the past year bankers have mostly been pleasantly surprised by the strength of their businesses. That may soon change. More

WHEN THE European Union established its cap-and-trade scheme for pricing carbon emissions in 2005 it faced a tricky design problem. Making polluting firms buy permits puts them at a disadvantage in global markets. Companies might respond to the scheme by moving their dirty activities offshore, causing “carbon leakage”. And if producers in places with lax environmental standards outcompeted European firms, global emissions would go up. The EU solved the problem by offering subsidies and free pollution permits to some dirty industries exposed to trade.Those handouts, however, have always had a target on their back. On July 14th EU officials set out a plan to phase them out and replace them with a “carbon border-adjustment mechanism” (CBAM). Between 2025 and 2035, producers of aluminium, cement, fertilisers and steel will gradually lose their subsidies. But importers of these goods will have to buy a new category of pollution permit. How many they need will depend on the amount of carbon estimated to have been emitted during the production of the goods. The policy is in effect a tariff, intended to compensate for the fact that foreign firms may face no carbon price, or one that is lower than Europe’s.The switch will please those who suspect that subsidies have blunted the impact of carbon prices. In theory free permits do not affect the incentive to reduce emissions, because at the margin the financial reward for doing so is the same: firms that get greener can sell their surplus entitlements. In practice the freebies have sapped ambition. Michael Grubb of University College London points out that companies know that if they sell their permits today, they might receive fewer handouts in future. Compared with the industries that have received support, the power sector, which has not, has decarbonised more quickly. Victoria Irving of Morgan Stanley, a bank, says that some subsidised polluters have made green investments, but “they have a long way to go”. Withdrawing the subsidies without a new scheme would bring back the danger of leakage.Officials estimate that by 2030 the CBAM and the suite of environmental policies announced alongside it will reduce emissions in the affected sectors by 14%, compared with a scenario in which nothing changes. However, imports would be 12% lower, because tariffs depress trade. Though totemic, the scheme’s scope is relatively small. It would raise about €9bn in revenues in 2030 (although that figure may nearly double once the policy is fully phased in). The carbon embodied in trade flows is typically less than 10% of countries’ total emissions, according to the IMF, and the proposal covers only a handful of sectors. In 2019 the imports in question were worth only €29bn ($33bn, or 1.5% of the total for the bloc).Tariffs do not have to be large, however, to provoke a response. Perhaps it will be a good one: with the CBAM in place, foreign countries might as well price carbon at home and keep the revenue for themselves (the EU will grant discounts for carbon taxes already paid). As the scope of the CBAM increases, so will other governments feel a greater pull towards pricing emissions. A more likely consequence, however, is a brawl over whether the policy is protectionist. Australia and India, both exporters to the EU, are already grumbling that the tariff could be discriminatory and regressive. In March America warned the EU that border levies should be a “last resort”. It has also said it is considering one of its own despite not pricing carbon itself, other than through an incomplete patchwork of state schemes in which prices are too low.There is also a danger of unintended consequences. Foreign companies could redirect their greenest exports to Europe and send their dirtiest output elsewhere, rather than cutting overall emissions. This phenomenon, dubbed “resource shuffling”, has troubled California, which has a CBAM for its electricity market—the only existing comparable scheme. Firms could also adjust their supply chains to exploit the limited scope of the policy. A carmaker that would have to buy permits to import steel may prefer to buy a car chassis made with steel overseas, to which the CBAM would not apply.The risk of carbon leakage rises in tandem with the carbon price. A study published in January by DIW Berlin, a think-tank, found that a price of €75 per tonne would leave as much as 15% of the EU’s manufacturing vulnerable to being undercut in this way. (European carbon prices are hovering between €50-60 per tonne, and projected to increase.)Steel yourselfThese problems, however, will be reduced to the extent that carbon prices are adopted everywhere. The power of incentives means carbon-intensive production will always try to find its way to where emissions are cheap, but that does not mean it is futile to try to plug all the holes. The best argument for the CBAM is that it is a first step towards a world in which emissions cannot escape carbon prices. Were they sufficiently widespread, the CBAM would be rendered unnecessary.Long before that happens, though, the EU must overcome opposition to the CBAM at home. One problem is that trade will be adjusted on the way in but not on the way out. Exporters, having lost their subsidies, will still find themselves competing in markets outside Europe’s borders against firms that can ignore the cost of carbon. (Around 8% of the EU’s cement production, and 18% of steel, is exported.) Already some lawmakers in the European Parliament, which must approve the proposal, are calling for border adjustment to exist alongside free permits, punishing foreigners while continuing to shield those at home. Bowing to them would turn a potentially useful policy for fighting climate change into naked protectionism—and an instructive example for other countries into a cautionary tale. More

Goldman Sachs CEO David Solomon said that China’s recent moves boosting oversight of its technology industry surprised him and will likely delay “a large number” of companies from listing shares in the U.S.Last week, shares of riding-hailing giant Didi Global plunged after China declared that new users couldn’t download the app amid a cybersecurity review. Didi had been advised by Chinese regulators to postpone its U.S. listing, but the tech company went ahead with it last month, The Wall Street Journal has reported.”There’s a significant backlog of Chinese companies that are turning to global capital to raise money to support their growth, and we have our own backlog, a large number of companies that have been planning to come to the U.S. market,” Solomon told CNBC’s Wilfred Frost on Tuesday in an interview.”Because of the actions the Chinese government has taken, I think some of those companies will not come to market at this point in time,” Solomon said, adding it was too early to tell what the long-term impacts would be.As head of what is arguably the premier global Wall Street advisory firm, Solomon will have to navigate the increasingly fraught relationship between China, its giant technology firms and the rest of the world. Goldman, along with JPMorgan Chase and Morgan Stanley, were lead underwriters on Didi’s U.S. listing.Read more about China from CNBC ProArk Invest’s Cathie Wood warns of a valuation reset in Chinese stocks amid crackdown by BeijingDan Niles says he’s now tempted to buy Chinese tech stocks – here are 2 of his favoritesDelisting of Chinese stocks on U.S. exchanges appears inevitable, Cowen says”I was surprised that this played out the way it did, at this moment in time, but we’re engaged with regulators around the world,” Solomon said. “I think it’s early to see how exactly the shift will balance over time, but there’s no question the Chinese want more control of the direction of some of this listing activity, and so they’re taking steps that will give them more control.”Earlier Tuesday, the New York-based bank posted results that handily beat expectations, helped by strong revenue from Wall Street advisory activities.Become a smarter investor with CNBC Pro. Get stock picks, analyst calls, exclusive interviews and access to CNBC TV. Sign up to start a free trial today. More

U.S. stock index futures were flat in overnight trading on Tuesday, after the major averages finished in the red, weighed down by inflation fears.Futures contracts tied to the Dow Jones Industrial Average rose 9 points. S&P 500 and Nasdaq 100 futures were also slightly higher.The Dow closed the regular trading session down 107 points, or 0.3%. The decline came a day after the Dow closed at a record. The S&P and Nasdaq Composite hit all-time highs on Tuesday before giving back those gains and ultimately closing lower. The S&P 500 dipped 0.35%, while the Nasdaq Composite shed 0.38%, each posting their first negative session in three.The decline came after the Labor Department said inflation last month advanced at its fastest pace in nearly 13 years. The consumer price index jumped 5.4% from a year earlier, which was above expectations of a 5% increase, according to economists surveyed by Dow Jones. However, since a significant portion of the overall increase came from a jump in used car prices, some were quick to say the inflation will likely be transitory.Amid a down day on Wall Street, the S&P 500 tech sector bucked the negative trend and closed at a fresh all-time high. The 10 other S&P sectors dipped, with real estate leading the losses.The major averages are still hovering around their all-time highs, and Wall Street strategists are optimistic about what the second half of 2021 holds as the economy continues to recover from Covid-19.”After a 2020 we will never forget, we look ahead to the second half of 2021, and even into 2022, with optimism for the future,” said Burt White, LPL managing director and chief investment officer. “We believe we are early in the economic cycle and the next recession is potentially years away.”UBS raised its December 2021 S&P 500 target to 4,500 on Tuesday, up from a prior forecast of 4,400. The call hinges on strong numbers from second-quarter earnings.”We believe the equity bull market remains on solid footing driven by huge consumer cash balances, surging business investment, and a still-accommodative Fed,” the firm said in a note to clients.JPMorgan and Goldman Sachs kicked off earnings season on Tuesday, with both banks beating top and bottom line estimates. Bank of America, Citigroup and Wells Fargo are slated to report earnings before the market opens on Wednesday, as are BlackRock, PNC Financial and Delta.In total, 23 S&P 500 companies will post quarterly results this week.Become a smarter investor with CNBC Pro. Get stock picks, analyst calls, exclusive interviews and access to CNBC TV. Sign up to start a free trial today More

San Francisco Federal Reserve Bank President Mary Daly poses at the bank’s headquarters in San Francisco, California, U.S., July 16, 2019.Ann Saphir | ReutersSan Francisco Federal Reserve President Mary Daly told CNBC on Tuesday that a strong economic recovery will allow the central bank to slow its asset purchases, possibly near the end of 2021.Markets have been looking for clearer guidance from the Fed on when it will begin to reduce, or taper, the minimum $120 billion it is buying in Treasurys and mortgage-backed securities.While Daly did not give an exact timeline, she said the time for tapering is drawing near.”It is appropriate to start talking about tapering asset purchases, taking some of the accommodation that we have been providing to the economy down,” she told CNBC’s Steve Liesman. “We’ll still be in a very accommodative position with a low funds rate, but we don’t need all the tools we see the economy get its own footing.”This is “absolutely the time to start doing that, having those conversations,” she added. “My own view is we’ll probably be in a good position to taper at the end of this year or early next.”The Fed has resisted calls from some big names in the market to pull back on the purchases, which are known also as quantitative easing.Among the concerns from investors including Paul Tudor Jones and corporate officials such as Bank of America President Brian Moynihan was that the Fed is allowing the economy to run too hot and is risking inflation.Daly spoke just a few hours after the Labor Department said headline inflation rose 5.4% year over year in June, a number above market expectations and hottest since before the worst of the 2008 financial crisis.However, she remains convinced — like many other Fed officials — that the current inflation pressures won’t last as the economy returns to normal.”Right now, it really remains steady in the boat, don’t read too much signal out of any month of data and let’s get through this volatile period so we can really see where the economy is,” she said.Become a smarter investor with CNBC Pro.Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.Sign up to start a free trial today. More

In this articleEAJPMGSCAGPEPBABoeing employees walk by a new Boeing 737-900 at Boeing Field in Seattle Thursday, July 15, 2004.Barry Sweet | Bloomberg | Getty ImagesCheck out the companies making headlines in midday trading.Boeing — Shares of Boeing fell more than 3%. The plane maker cut production of its 787 Dreamliners after a new flaw was detected on some of the jets. Boeing also cut its delivery target for the planes.PepsiCo – Shares of the snack and beverage company advanced more than 2% to a new all-time high after the company beat top and bottom line estimates during the second quarter. Pepsi earned an adjusted $1.72 per share on $19.22 billion in revenue, compared to Wall Street’s expectations of $1.53 per share on $17.96 billion. The company also raised its forecast as restaurant demand returns.Electronic Arts — The video game publisher rose 2.5% after BMO Capital Markets upgraded EA to outperform from market perform. The investment firm said in a note that the market appeared to be underestimating the strength of the video game market amid the economic reopening and that some of EA’s games show upside potential in the upcoming year.Goldman Sachs — Shares of the New York-based bank fell more than 1% even after a stellar quarterly earnings report. Goldman’s second-quarter earnings and revenue blew past Wall Street’s expectations as its investment banking segment posted its second-highest revenue quarter ever, behind the first quarter of 2021, amid a booming IPO market. Since the stock is already up more than 40% this year, much of the good news might have been priced in.Okta — Okta’s share price rallied over 2% after Goldman Sachs initiated coverage of the stock with a buy rating. The Wall Street firm Goldman said the cloud and identity management company that it was well positioned in the shift to digital.Roblox — Shares of the video game company dropped more than 2% after Benchmark initiated coverage of the stock with a sell rating. The Wall Street firm cited concerns about the pull forward in the stock during the pandemic.JPMorgan — The bank’s share price fell about 2.6% despite JPMorgan reporting a quarterly profit of $3.78 per share for the second quarter, beating the $3.21 consensus estimate. Revenue also topped the Street’s forecasts. First Solar — Shares of the solar panel company dipped less than 1% on Tuesday after Citi downgraded First Solar to neutral from buy. The firm said in a note to clients that First Solar’s stock had priced in a lot of good news for the company, including the potential for green energy spending in an infrastructure deal in Congress. The stock had jumped nearly 20% in the past three months.Conagra Brands — Shares of the food company slumped more than 4% despite beating on the top and bottom lines of its quarterly results. Conagra reported earnings of 54 cents per share on revenue of $2.74 billion. Analysts expected earnings of 52 cents per share on revenue of $2.71 billion, according to Refinitiv.— with reporting from CNBC’s Hannah Miao, Jesse Pound, Pippa Stevens and Yun Li. More

JPMorgan Chase reported second-quarter profit and revenue that exceeded analysts’ expectations as the firm released money set aside for loan losses.Here’s how the bank did:Earnings: $3.78 per share, exceeding the $3.21 per share estimate per Refinitiv.Revenue: $31.4 billion, topping the $29.9 billion estimate.One key factor is that after the industry set aside tens of billions of dollars for loan losses last year, banks have been releasing reserves as borrowers have held up better than expected.That happened at JPMorgan, the biggest U.S. bank by assets, in the second quarter. The firm posted a $2.3 billion benefit from releasing $3 billion in loan loss reserves after taking $734 million in charge-offs. The bank had a $5.2 billion reserve release in the first quarter.”Consumer and wholesale balance sheets remain exceptionally strong as the economic outlook continues to improve,” CEO Jamie Dimon said in the release. “In particular, net charge-offs, down 53%, were better than expected, reflecting the increasingly healthy condition of our customers and clients.”The bank said the improving U.S. economic outlook drove its decision to release money set aside for loan losses, which came mostly from retail credit-card and mortgage reserves.Trading revenue fell 30% from the year earlier period, an expected outcome after the frenzied activity in the aftermath of Federal Reserve actions to bolster markets during the early stage of the coronavirus pandemic.Fixed income trading produced $4.1 billion in revenue, just under the $4.16 billion estimate of analysts surveyed by FactSet. Equities trading generated $2.69 billion in revenue, topping the $2.31 billion estimate. The combined figure was in line with Dimon’s guidance last month of “a little north of $6 billion” in trading revenues.Investment banking helped offset the drop in revenue from trading. The firm posted $3.4 billion in investment banking revenue, topping the estimate by $300 million, on strength in mergers activity and acquisition financing.Analysts may ask Dimon about the bank’s succession planning after it named two senior executives, Marianne Lake and Jennifer Piepszak, to run the company’s sprawling consumer bank. The changes led to the promotion of global research head Jeremy Barnum to CFO succeeding Piepszak; this is Barnum’s first quarter handling the firm’s earnings release.Dimon may also be asked about his acquisition strategy after making the third purchase of a fintech start-up since December. Last month, the bank agreed to buy ESG investing platform OpenInvest, CNBC reported first.JPMorgan dipped less than 1% in premarket trading after the earnings report. Shares of the bank have climbed 24% this year before Tuesday, exceeding the 17% rise of the S&P 500 Index.This story is developing. Please check back for updates.Become a smarter investor with CNBC Pro. Get stock picks, analyst calls, exclusive interviews and access to CNBC TV. Sign up to start a free trial today. More