Markets are inside the red today after three major banks reported quarterly earnings before the bell on Friday.
JPMorgan Chase reported a beat on each top and bottom lines, with profits jumping 6% in the first quarter to $13.4 billion. Despite the beats, JPM Chairman and CEO Jamie Dimon highlighted future concerns, noting, “looking ahead, we remain alert to numerous significant uncertain forces… there appears to be quite a lot of persistent inflationary pressures, which may likely proceed.”
Wells Fargo, and Citibank each reported declines, but not as steeply as Wall Street had been expecting. Bank ETFs slid on the underwhelming reports. XLF, the Financial Select Sector SPDR Fund, dropped 1%.
The banking sector has remained robust because the upper rates of interest have increased profit margins for the financial sector. Yr thus far, XLF is up nearly 11%. But today’s reports highlighted that higher rates could change right into a headwind going forward.
XLF YTD Performance
Source: etf.com data
Blackrock also reported quarterly earnings before the bell on Friday, with a beat on each earnings and revenue. Blackrock’s assets under management (AUM) jumped to a record $10.5 trillion while revenue rose 11% as a consequence of higher fees and robust market performance.
Blackrock ETFs proceed to perform well, while Blackrock’s largest ETF, IVV, the iShares Core S&P 500 ETF, is up greater than 9.5% up to now this yr since the markets have continued their bull run.
Though higher rates have typically boosted the financial sector, the “higher for longer” rate environment presents challenges. Higher rates send consumers elsewhere for higher yields in savings accounts that smaller banks offer, while many searching for loans for financial products like mortgages have chosen to stay on the sidelines and wait for rates of interest to return back back to Earth.
Inflation concerns have been inside the forefront this trading week after the client price index (CPI), released Wednesday, highlighted persistent and stubborn inflationary trends.
Investors are currently forecasting that the Fed won’t cut rates until the July policy meeting at earliest, which is in a position to proceed to weigh on real estate, and fixed income ETFs.