Goldman Smashes Earnings, Dimon Warns of Shifting Ground

Grant Calloway

Last time out, I asked whether stocks near all time highs, with the ten year yield sitting above five and a quarter percent, were brave or blind. Well, the first exam papers got handed in before the opening bell. Good morning, I'm Grant Calloway, and this is the Bull Sheet.

Grant Calloway

Third quarter earnings season is officially underway, and the banks went first. The bar was high. FactSet has S&P 500 earnings growth for the quarter at 29.6 percent. If that holds, it's a third straight quarter above 25 percent. Now, Goldman Sachs. Net revenues of $18.68 billion, up 23 percent from a year ago. Net earnings of $5.29 billion. Earnings per share of $17.01, against estimates that ran from roughly $12.86 to $13.50, depending on whose survey you read, and against $12.25 a year ago. Return on equity, 18.7 percent. CEO David Solomon called it a complicated operating environment, but said clients kept turning to the firm, which gave it its second highest quarterly revenue ever and record revenue year to date. The stock is up more than four percent in the premarket. That's not a beat, folks. That's a wrecking ball.

Grant Calloway

JPMorgan is the more interesting story. Profit rose 6 percent to $15.3 billion, or $5.57 a share. Analysts wanted $5.90. Strip out $658 million in paper securities losses and it's $5.75, still shy. Revenue rose 8 percent to $50.2 billion. But the number I'd circle is a quote. Jamie Dimon said large fiscal deficits, sticky inflation, elevated asset prices, rising interest rates and geopolitical conditions continue to, quote, shift under the surface, end quote. He said these forces may be manageable, but the bank is prepared for a wide range of outcomes. When the biggest bank in the country tells you the ground is moving, you at least check your footing.

Grant Calloway

Wells Fargo beat, with earnings of $1.87 a share against $1.84 expected on $21.9 billion in revenue. Credit loss provisions of $1 billion and net charge offs of $983 million both came in better than forecast. CEO Charlie Scharf said consumer and business customers are doing well. And UnitedHealth beat and raised. Adjusted earnings of $4.69 a share against $4.14 expected, and full year guidance lifted to at least $20.50, per Reuters, as Optum's clinical margins improved. Johnson and Johnson beat too, at $2.59 against $2.53, and nudged full year guidance up to $11.05 to $11.15. But more on why its stock is falling in a minute.

Grant Calloway

Now the tape, which is tighter than a drum on the surface and split down the middle underneath. As of early this morning, Dow futures are up about 456 points, nearly nine tenths of a percent, led by Goldman and UnitedHealth, two heavyweights in a price weighted index. S&P futures are basically flat, off about 0.06 percent. Nasdaq 100 futures are down about 0.7 percent, and Russell 2000 futures are off roughly 0.45 percent. So the banks and the healthcare names are carrying the Dow, and the growth trade is taking a breather.

Grant Calloway

Overseas, Tokyo's Nikkei jumped 1.82 percent, and Seoul's KOSPI rocketed 5.46 percent. Hong Kong's Hang Seng slipped 0.3 percent, and Shanghai edged up 0.1. Europe is a shrug. The FTSE 100 is up half a percent, while the DAX, the CAC and the Stoxx 600 are all a touch lower. In rates, a little relief. The ten year yield is down about five basis points at 5.19 percent, the thirty year is at 5.55, and the two year is at 4.78. Crude is cooling, with WTI near $92 and Brent near $105, each down more than one and a half percent. Gold is up about four tenths of a percent at roughly $4,208. The dollar is a bit softer, and Bitcoin is up almost two percent, around $83,000.

Grant Calloway

Movers, and let's keep it broad. Goldman, up more than four percent, we covered. UnitedHealth is up around four and a half percent on that guidance raise. J&J is down about two percent, because MedTech sales grew just 2.5 percent to $8.64 billion, even as pharma sales rose 7.7 percent to $16.75 billion. The market is grading the weak spot, not the strong one. In consumer, eBay is gapping higher after Morgan Stanley called it a top pick, pointing to live commerce taking off. On the soft side, Intel is down about two percent as chips get pressured, with Micron sliding on reports of denser memory chips from China's CXMT. And Cipher Digital is down more than twelve percent, even with spot Bitcoin higher. Miners and spot don't always dance together.

Grant Calloway

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Grant Calloway

Now, Bull versus Bear. Does a Goldman and UnitedHealth morning prove earnings can outrun five percent yields, or does Dimon's warning, plus that Dow and Nasdaq split, say this rally is running out of road? Let me argue both, then tell you where I land.

Grant Calloway

The bull says: look at the actual numbers. Profit growth near 30 percent is expected, and Goldman just put up $17.01 on an 18.7 percent return on equity. Wells Fargo says loan losses are low and customers are spending. UnitedHealth is raising guidance. Meanwhile, the ten year is off its highs, and Brent has slipped below $105. The bull says the economy absorbed the rate shock and the earnings are proving it.

Grant Calloway

The bear says: slow down. Dimon just named deficits, sticky inflation, rising rates and geopolitics, and he runs the biggest bank in the country. JPMorgan missed. Small business optimism, the NFIB index, printed 97.9, under the 98.0 forecast and down from 98.7. Nasdaq futures are sliding. And a 5.19 percent ten year doesn't care how good Goldman's trading desk had it. Eventually, the cost of money squeezes what investors will pay for earnings, and a great quarter is already in the price.

Grant Calloway

Here's where I land. The bull has the better evidence today, and the bear has the better question. Goldman's blowout is a trading and dealmaking story, which tends to run hot and cold. And the bear's best card, JPMorgan's caution, came from the same earnings season the bull is cheering. So I'm not calling anyone brave or blind. I'm calling it early. Four reports in, with the broad market still ahead, is not a verdict.

Grant Calloway

On deck today. Existing home sales hit at 10 a.m. Eastern, with forecasts around 3.95 to 3.965 million annualized, against 3.98 million prior. At 11:30, the Treasury auctions three month and six month bills. At 1 p.m., Richmond Fed President Barkin speaks. At 2 p.m., the monthly budget statement, with a deficit of around $29 billion expected against $167 billion prior. And at 4 p.m., Boston Fed President Collins speaks. Tomorrow morning, Bank of America, Morgan Stanley and BlackRock report, and the September CPI lands at 8:30 Eastern, with forecasts pointing to around 3.6 percent year over year, up from 3.4.

Grant Calloway

What matters most today: whether the Dow's strength spreads to the rest of the tape, or whether the bonds and the Nasdaq pull it back. I'll be here tomorrow before the bell, with CPI as the main event. A tape that's split like this tends to settle one way or the other. This podcast is for educational purposes only and is not investment advice.