Making sense of the markets this week: July 17

JPMorgan (JPM/NYSE): Even “economic rockstar” and JPMorgan CEO Jamie Dimon wasn’t immune to the bank downturn. Earnings fell 28%, and earnings per share were $2.76, versus the predicted $2.88. The stock was down 5% in early trading after the earnings call, and is now down nearly 30% year to date.

Morgan Stanley (MS/NYSE): A 55% drop in investment banking revenues highlighted a rough quarterly report. Overall revenue came in at $13.13 billion, versus $13.48 billion predicted. And earnings per share were $1.39, versus $1.53 predicted.

Wells Fargo (WFC/NYSE): Second-quarter profit declined 48% from last year, but this decline was somewhat expected. Adjusted earnings per share were $0.82, versus $0.80 predicted, on revenues of $17.03 billion versus $17.53 billion predicted.

Citigroup (C/NYSE): Citigroup fared the best out of the U.S. banks that reported this week, as earnings per share were $2.19 versus $1.68 predicted. Revenues were $19.64 billion versus $18.22 billion predicted and shares were up over 3% in early trading.

While U.S. banks are seeing substantially lower revenues from investment banking, this was expected to some degree in year-over-year comparisons given how hot that market was in 2021. Given the dramatic differences in revenue models between Canadian banks and their U.S. counterparts, investors should be careful when making negative extrapolations and applying them to their Canada-based financials portfolio. While the threat of a recession clearly isn’t good news for banks anywhere in the world, they should receive some tailwinds in the form of increasing interest rates spreads going forward.

I still don’t believe this recession will be deep enough to represent any real threat to the Canadian banks in the long term. After all, we’re still in an incredibly hot labour market and the strengthening U.S. dollar can only continue to help our balance of trade numbers.

Cogeco earnings up as Quebec’s economy shows strength

While the Canadian earnings scene was mostly quiet this week, Cogeco Communications (CGO/TSX) posted an impressive 5% earnings raise for the quarter, with CAD$100.3 million in reported net profit. Revenue was up 16.6% over the period, and earnings-per-share went from $2.02 to $2.17 on a year-over-year basis. 

In response to the good news, shares of the company jumped 5% in early trading on Thursday morning.