Newscasts - Market Insight: Q3 earnings show "pressure on banks is fading"
15/10/2024 18:23
Click the following link to watch video: https://share.newscasts.refinitiv.com/link?entryId=1_x18ihy3h&referenceId=1_x18ihy3h&pageId=Newscasts Source: 'Reuters - Business videos' Description: A slew of positive performances for the investment arms of major U.S. banks suggests that a rise in M&A and IPOs may be on its way. Director of Research at FBB Capital Partners Mike Bailey shared his view with Reuters. Short Link: https://refini.tv/3Y8xX4x Video Transcript: Bank earnings suggest that more deals and IPOs may be on their way. Welcome to Market Insight. I'm Thomas Warner. Last month's 50-basis-point rate cuts served to bolster the view on Wall Street that investment banking is picking up speed. If so, it could herald more growth across the US economy. So, are the good times about to roll? Joining me now to give his take on that is Mike Bailey, he is Director of Research at FBB Capital Partners. A very warm welcome to you, Mike. Mike, what do you think that the bank results we've seen so far have to tell us? No, it's been a pretty good string of results that really are not seeing a lot of flaws coming out. In fact, if you broaden things out a little bit, just look at all financials in the US, that particular part of the market is beating Wall Street estimates more than any other sector together. So, it has been a pretty good start. If we zoom in and take a look at banks in particular, on one hand we are seeing kind of getting away from the bad old days a couple of years ago, banks like Silicon Valley were going under a lot of those pressures are starting are continuing to fade. So that's a good thing. The flip side is looking at more for retail people using credit cards, et cetera. We're also seeing that, that look pretty good. So generally, pretty good results across the board. It's still somewhat early days here, but in general a good start for earnings season in particular for the banks. It sounds like you think that these positive bank results do bode well for the slew of results that we are still waiting to hear about. In general, yes, I think the pieces that are most relevant for the rest of the market, frankly part of that could be credit cards. A couple of the big banks, JPMorgan, et cetera have a credit card business. A lot of investors have been worried frankly about some of the lower income consumer that part of the demographic seeing a lot of pressure there among Dollar stores and within retail for example. So, when big credit card companies, JPMorgan and others are seeing general stability in that segment of their business, I think that does bode well for at least consumer oriented sectors. So, we do feel a bit better about that particular part of the market. Well, there is something that you flagged in your notes that you think people should be watching out for and that's that you think that the market will be keen to punish any misses quite severely, given that there clearly is money to be made out there at the moment, and do you think that's what we saw with UnitedHealth today? Yes, absolutely. So, I think as you start to see the overall market in general, just sort of grind higher, evaluations are moving up and that leaves less wiggle room, frankly, in case there's a problem, we saw that sort of off cycle with FedEx for example. And we're continuing to see that. So, UnitedHealth, we own the stocks. So, we're pretty familiar with what's going on, but I'd say in general, pretty good results, but when you bring down guidance, investors are really concerned about that. So, you are seeing investors kind of vote with their feet and for some of these mild disappointments. And I would expect that to continue, especially as markets kind of are near all-time highs and that expectation is really high. Investors really want results that are in line or ahead of what they're expecting. Well, we've got Microsoft and Alphabet results coming next week. They're going to be the first Mag Seven companies reporting, and chipmakers have been looking very punchy of course recently. Are you minded to keep buying mega caps? Though at the moment in general, yes. I think you do need to be picky. We wouldn't just sort of grab all the Magnificent Seven or the mega caps and sort of close-up shop and be done. I do think it takes being having a keen eye and looking at each one. Some of them look favorable, others maybe not quite as much. I think in general we like diversification. We like long-term growth, as opposed to something that's really concentrated and has sort of a very short-term growth driver. So, we might flag frankly Amazon is something that's pretty compelling, -- got e-commerce, they've got AI, cloud computing, a lot of things going on and its longer-term growth. So that's something I think where we would want to be overweight. Plenty of growth within the other names, but I do think you need to be picky. And I think probably plenty of other attractive companies outside of that top five or top ten group. So, a lot of interesting ideas out there. Anybody that you'd get a name Mike? You know, I think as you sort of go down the list some of the names that we would look at. So, it's a huge company, but it's outside the US it's Taiwan Semi. So, if you were to look at a kind of a global Mag Seven or Mag Eight, whatever it would be, that would probably be up there. Pretty compelling company and I think what we like about it, it's diversified. So, every high-tech chip that's going through the system, they're working on it. They're processing that. And so that's something where you're not really betting on one specific technology, but you are getting the benefits of a lot of growth for, for NVIDIA, for example. So, sort of a lower risk return way to own that. And again, a lot of growth there. That's something that we view is pretty compelling. Well, one stock that people are going to be having the chance to buy plenty of soon is Boeing, they're looking to raise up to $35 billion. How attractive of an opportunity do you find that at the moment? Yes. So, Boeing certainly for the big assemblers, Boeing and Airbus, a lot of volatility there, especially much more for Boeing as the last few years. For us that opportunity is something we would probably hit pause on. Looking sort of within the aerospace sort of food chain or supply chain. We will probably take a notch or two below that, just given a lot of the sort of heavy lift that needs to go on at Boeing. Plenty of other companies within aerospace that look more interesting. So, something like helmet, that's something compelling again producing sort of the materials or some of the engines, et cetera. Again, companies like that within that supply chain if Boeing has a problem, Airbus is still working. If Airbus has a problem, Boeing generally has things happening. So, that's probably a better way to play it for us. However, for those with a sort of iron constitution, Boeing could be pretty compelling here. They may turn around at some point, but I do see a bit more risk to that recovery. Thank you, Mike Bailey, Director of Research at FBB Capital Partners. And that is Market Insight