JPM, GS & BAC Hit New Record Highs Following Blowout Big Bank Earnings

invest smarter with Schwab. We're back on Morning Trade Live looking at the five big banks that reported earnings this morning. A very different picture to the pre-market. In fact earlier a lot of them were down. Goldman Sachs was the only one that was higher. Now it's a bit of a turn of events. You've got Wells Fargo which is down 1% while the rest are higher. Goldman very much getting rewarded for its great report. Up 8% right now JPM. With this record trading quarter that we saw as well, putting on 2.5%. PFA up two. Citi up almost two right now. So let's go inside out on these bank earnings. And what we learned here what it's going to mean for the broader economy in the markets. Joining us now to discuss this is Greg Holter who's the director of research over at Carnegie Investment Council. Greg so nice of you to join us. So a record smashing quarter here. I would say they did. Certainly these executives continue to highlight tectonic risks. I think that was Jamie Dimon's words, including the inflation picture, the macro backdrop. But all in all, very much benefiting from the trading desk. We've seen a lot of underwriting that steepening of the yield curve. How would you characterize everything we got this morning? Thank you for having me Sam. I guess one word is good or I should say emphasize. Very good. The numbers came through very, very well. And what do you think that means? I mean, as far as a tone setter for the rest of the earnings season, do you think it's sustainable as well? Well, if you believe that the consumer is 70% of the US economy, which it is at least two thirds, and you listen to Bank of America and look at their results closely. You know, they've got they've got 70 million consumers. They've got their own institute that tracks spending. It was up 6% in June. And I heard it's tracking at that same type of pace for July. So that would lead me to believe that the economy is in decent shape and should be good for reports from many other companies out there as well. What about the regional banks? Yes. Interesting you should ask. I saw that Farmers and Merchants Bank of Long Beach reported this morning a name you probably don't hear very often on this show, but they came through with very good results. And I've noticed that the stock has doubled or more than doubled in the last year for a small cap, $11 billion asset bank. They are doing very well also. And that's just, you know, one small regional bank. So I think it's carrying out across the country. You look at the bank indices and they're at record highs. They're kind of leading the market right now. So again, if you believe price leads fundamentals, we're certainly seeing that in spades right now. What do you make of the reaction in these markets this morning. I mean obviously we've got a cooler CPI print which is helping. I mean you know particularly with yields and stocks getting very much some relief from that. But you know, given what we saw in the pre market, it looked like Goldman Sachs was the only one that was getting rewarded for what was a phenomenal report here. Most of them have picked up. Now you still got wells under water. Do you read much into what we've seen as far as the market reaction today? Well, I think you had some of the banks report before the CPI number. The CPI number was the first time down on a year over year basis, I think since 2020. So that kind of helped. And some of the the names in the tech trade had premarket numbers that looked pretty positive. I think when people listen to calls, peeled back the onion, heard what was said by the executives. Things look pretty good out there. And I think the the stocks responded accordingly. You know, the momentum is certainly there with the financials. And this is just another opportunity to reward the shareholders or the share prices, if you will, with the given those very strong results. Yeah. And obviously we've seen some pretty strong trading activity. I mean, obviously a record for JPM. Goldman Sachs had a great report as well. We know that they've been benefiting from a lot of the volatility that's been caused because of the Iran war, etc. They've been benefiting from a lot of the underwriting that they've been doing with the summer of S1's and IPOs. How sustainable do you think that part of the business is? Well, I did listen closely to what Bank of America had to say, and their IPO pipeline seems to be very strong. Investment banking activity generally is very strong. I think we're at a record level in terms of M&A globally, 2.3 trillion or some huge number like that. So that continues very well. They did very well in Asia. I think these unless there's some sort of event out there that's going to slow this stuff down, it appears that they're set at least very well for the next three months. Who are you going to be watching the closest moving forward? Because it doesn't seem to be a short term story right now. That is the issue. I'm just wondering, you know, sort of medium to longer term, who are you going to be sort of keeping a close eye on? Well, there's two companies in the banking area specifically that would be JP Morgan and Bank of America. Just because JP Morgan is so big. And then Bank of America covers the consumer. But I would also broaden that out to visa and Mastercard, which they obviously have the pulse of the consumer within their businesses. So those are two companies as well to watch closely to see what they say and what their results are when they come out okay. Those with a little bit more exposure to the consumer. All right, Greg, really appreciate the breakdown. So much to chew on this morning. Greg Holter, their director of research, Carnegie Investment Council. All right, let's trade J.P. Morgan Chase now with George Ellis. Good morning George. Just walk us through an example. Trade on this name. A great report. You know records across the board. Yeah. I mean it was a great report. If you look at, you know investment banking fees up 30%. Total sales were higher, 14% EPS, 24%. So across the board, really good for for JP Morgan. And if you look at the price action, broadly speaking, it's up nicely as well. Hitting some new 52 week highs. So I'm going to do in this case I'm going to structure a bullish trade with some flexibility in case there's some consolidation or pullback post earnings report across the board for the major banks. So I'm going to do is I'm going to go out to August monthly expirations with 36 days. I'm going to sell a put spread which essentially gives us some credit. But it also gives us flexibility for some downside price action. So with a current price right now above 340, I'm going to sell the 330 put. And then I'm going to buy the 320 put below that. So altogether you could harvest around $2.50 a share or $250 a contract here. So the whole premise behind this trade is, is for price maintenance to Be held above the short strike, which is two 330. Strike price, to which point that that $2 and 50 cent premium will go to zero. And that's where your max profit is. In case it does break below that level effectively. Three 2750 is your break even and you're earning. 250 but your risk is 750 and that only occur if the stock hits 320 or lower by expiration. But if you look at all the probabilities and return on risk profile for this stock or this position, there's a 71% probability of profits. And then second, your return on risk is about 33%. All right. A good day for the banks holding up. All right right now JPM up 2.7. Goldman's having a particularly good day. What do you make of the rest of the broader market. Obviously we've got a lot of information out this morning. George what's standing out to you. Yeah. What so I mean today if you look at the yield curve it's widening out. In other words short term rates are falling slightly faster or more in terms of magnitude relative long term rates. That's good for for the bond market but also good for for financials. And lastly two, I think if you look at the S&P it's encroaching back to the all time highs around 7620. So I'm looking for a breakout above that level. But the Nasdaq is lagging the S&P. So that's something you have to keep in mind. Yeah absolutely. It's been a little bit choppy this morning. S&P did actually dip into the red at one brief moment there. But we seem to have picked up some of the gains. Once again nice move on chips as well for us today George really appreciate it.