Market Inflection Points: Bank Earnings, CPI Data, and Credit Cap - Episode Hero Image

Market Inflection Points: Bank Earnings, CPI Data, and Credit Cap

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TL;DR

  • JPMorgan's Q4 earnings report and call will set the market tone, potentially triggering sector rotation if positive or a broad sell-off if negative, impacting both strong and weak companies.
  • The December CPI report is expected to show inflation distortions from the government shutdown unwinding, with core goods rising sharply and shelter resuming its trend.
  • A proposed 10% credit card interest rate cap could drive consumers to less regulated, more costly alternatives, hindering access to necessary credit.
  • Michael Burry's bearish bet on Oracle via put options highlights concerns about its cloud strategy and increasing debt load amidst the AI investment surge.
  • US equity short sellers collectively lost approximately $217 billion in 2023, underperforming the S&P 500 significantly, with roughly 70% of shorted dollars losing value.

Deep Dive

Big banks are set to launch the Q4 earnings season, with JPMorgan's report expected to signal the market's direction and potentially drive sector rotation or a broad sell-off. Alongside earnings, the upcoming December Consumer Price Index report will test recent inflation trends, while a proposal to cap credit card interest rates at 10% faces immediate opposition from banking groups, highlighting a potential conflict between consumer protection and financial industry operations.

JPMorgan's earnings will be crucial not only for its own performance but as a bellwether for the broader market. If the bank reports earnings dispersion, it could favor equal-weighted indexes as investors seek out specific sectors. Conversely, any indication from JPMorgan to de-risk could trigger a market-wide decline, impacting both strong and weak companies. Analysts will be scrutinizing headcount management, productivity, and the tangible benefits of AI adoption, which could serve as a significant catalyst. The December CPI report is anticipated to show a 0.3% month-on-month increase for both headline and core inflation, with year-on-year figures at 2.7% and 2.7% respectively. Economists expect distortions from the previous month's government shutdown to resolve, with core goods rising sharply due to holiday markdowns and shelter costs resuming their prior trend. Beyond these key events, Donald Trump's proposal for a 10% credit card interest rate cap is facing strong pushback from a coalition of banking associations. These groups argue that such a cap would push consumers toward less regulated and more expensive credit alternatives, potentially limiting access to credit. Separately, Michael Burry has taken put options on Oracle, signaling bearishness on the company's cloud strategy and debt levels amidst the broader AI investment trend.

The key takeaway is that the upcoming week presents significant potential inflection points, driven by major bank earnings and inflation data, which could dictate market sentiment and sector performance. The proposed credit card interest rate cap also introduces a new regulatory dynamic that could impact financial institutions and consumer credit access.

Action Items

  • Audit JPMorgan's Q4 earnings call: Identify 3-5 specific AI catalyst mentions and assess tangible benefits discussed.
  • Analyze December CPI report: Quantify expected month-on-month and year-on-year changes for headline and core inflation.
  • Evaluate credit card cap proposal impact: Summarize banking groups' 2-3 primary concerns regarding consumer access to credit.
  • Track short seller performance: Identify 5-10 most profitable and least profitable short positions from S3 Partners' scorecard.

Related Episodes

Key Quotes

"If enacted, this cap would only drive consumers towards less regulated, more costly alternatives, read a joint statement from the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America. We look forward to working with the administration to ensure Americans have access to the credit they need, they added."

The banking groups argue that a 10% cap on credit card interest rates would not benefit consumers. According to the joint statement, such a cap would push consumers to less regulated and more expensive credit options. The groups express a desire to collaborate with the administration to maintain access to credit for Americans.

"Analysts expect Q4 EPS of $4.98 on $46.25 billion in revenue, including $25 billion of net interest income. Beneath the headline numbers, Satchi says to watch headcount management and productivity, and whether JPMorgan can point to tangible benefits from AI, which he says could be another major catalyst in favor of this revolution."

Seeking Alpha analyst Lucas Satchi suggests focusing on specific operational metrics beyond the headline earnings per share (EPS) and revenue figures for JPMorgan's Q4 report. Satchi highlights headcount management and productivity as key areas to monitor. He also points to the potential impact of Artificial Intelligence (AI) as a significant catalyst for the company.

"Wells Fargo economists say the shutdown distortions in the November report should unwind this time around. They say, 'Under the hood, we expect core goods to rise sharply in December, as more holiday-related product markdowns than usual were likely captured in the November survey. Meanwhile, primary shelter is poised to resume its pre-shutdown trend and is unlikely to bounce back until the spring.'"

Wells Fargo economists anticipate that the upcoming December Consumer Price Index (CPI) report will reflect a normalization after distortions from a previous shutdown. The economists predict a significant increase in core goods prices for December, attributing the November figures to holiday markdowns being recorded earlier. They also expect shelter costs to return to their previous trend, with a full recovery not anticipated until spring.

"US short sellers were down about $217 billion in year-to-date mark-to-market losses, a return of negative 14.75% versus a gain of more than 16% for the S&P 500, with roughly 70% of every dollar shorted in the red."

S3 Partners' scorecard indicates that US equity short sellers experienced substantial losses in the past year. The data shows mark-to-market losses totaling approximately $217 billion, resulting in a negative return of 14.75%. This performance contrasts sharply with the S&P 500's gain of over 16%, with a significant majority of shorted investments being unprofitable.

Resources

External Resources

Books

  • "Seeking Alpha's Wall Street Brunch" - Mentioned as the title of the podcast series.

Articles & Papers

  • "Seeking Alpha analyst Lucas Satchi says JPMorgan could set the tone for the rest of the month." (Seeking Alpha) - Discussed in relation to potential market impact of JPMorgan's earnings report.
  • "Wells Fargo economists say the shutdown distortions in the November report should unwind this time around." (Wells Fargo) - Referenced for economic analysis regarding CPI data.
  • "S3 Partners is out with its scorecard on how equity short sellers fared last year" (S3 Partners) - Discussed as a source for data on short seller performance.
  • "See all 20 winners and 20 losers and all the numbers in our story on Seeking Alpha." (Seeking Alpha) - Mentioned as a location for detailed short seller performance data.

People

  • Kim Khan - Host of the podcast.
  • Lucas Satchi - Seeking Alpha analyst providing market insights.
  • Donald Trump - Mentioned for his proposal on credit card interest rates.
  • Michael Burry - Referenced for his put options on Oracle.

Organizations & Institutions

  • JPMorgan - Mentioned for its upcoming Q4 earnings report.
  • BVA - Mentioned for its upcoming Q4 earnings report.
  • Wells Fargo - Mentioned for its upcoming Q4 earnings report and economic analysis.
  • City - Mentioned for its upcoming Q4 earnings report.
  • Goldman Sachs - Mentioned for its upcoming Q4 earnings report.
  • Morgan Stanley - Mentioned for its upcoming Q4 earnings report.
  • BlackRock - Mentioned for its upcoming Q4 earnings report.
  • Delta Airlines - Mentioned for its upcoming earnings report.
  • Taiwan Semiconductors - Mentioned for its upcoming earnings report.
  • American Bankers Association - Mentioned in opposition to President Trump's credit card interest rate proposal.
  • Bank Policy Institute - Mentioned in opposition to President Trump's credit card interest rate proposal.
  • Consumer Bankers Association - Mentioned in opposition to President Trump's credit card interest rate proposal.
  • Financial Services Forum - Mentioned in opposition to President Trump's credit card interest rate proposal.
  • Independent Community Bankers of America - Mentioned in opposition to President Trump's credit card interest rate proposal.
  • AT&T - Mentioned for going ex-dividend.
  • Verizon - Mentioned for going ex-dividend.
  • Comcast - Mentioned for going ex-dividend.
  • Apple Labs - Mentioned for going ex-dividend.
  • Nvidia - Mentioned as a less profitable short for equity short sellers.
  • Alphabet - Mentioned as a less profitable short for equity short sellers.
  • Tesla - Mentioned as a less profitable short for equity short sellers.
  • Palantir - Mentioned as a less profitable short for equity short sellers.
  • Micron - Mentioned as a less profitable short for equity short sellers.
  • MicroStrategy - Mentioned as a profitable short for equity short sellers.
  • The Trade Desk - Mentioned as a profitable short for equity short sellers.
  • Charter Communications - Mentioned as a profitable short for equity short sellers.
  • Circle Internet - Mentioned as a profitable short for equity short sellers.
  • UnitedHealth - Mentioned as a profitable short for equity short sellers.

Websites & Online Resources

  • Seeking Alpha - Mentioned as the source of the podcast and articles.
  • seekingalpha.com/wsb - Mentioned as the location for podcast transcripts.
  • seekingalpha.com/subscriptions - Mentioned as the URL for subscription information.

Other Resources

  • Q4 earnings - Mentioned as the focus of the week's market events.
  • AI - Discussed as a potential catalyst for JPMorgan.
  • Consumer Price Index (CPI) - Mentioned as a key economic report.
  • credit card interest rates - Discussed in relation to President Trump's proposal.
  • equity short sellers - Discussed in relation to their performance in the past year.
  • S&P 500 - Used as a benchmark for equity short seller performance.
  • AI train - Mentioned in relation to Michael Burry's bearish bet.
  • cloud strategy - Discussed in relation to Oracle's business.
  • income investors - Mentioned in the context of dividend payouts.
  • ex-dividend - Term used to describe stocks before dividend payout.
  • Groundhog Day - Mentioned humorously in relation to dividend payout dates.

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