Trader Talk: Bank Earnings & Market LogicJul 18, 2023
The following is a chat between Rob and one of the many traders he helps coach. The chat took place the morning of July 14, 2023 and takes a look at the latest bank earnings and how to interpret them, plus more.
Earnings season is about to ramp up:
C, JPM, WFC all beat estimates.... and show beats in revenue estimates as well
Citigroup getting boost from credit card revenue.... they're the world's 2nd largest credit card issuer
Just a reminder about market logic.
The market factors in everything it knows or can anticipate.
The age old adage of buy rumour and sell news is still often true (not always but often)
So when a good piece of news comes out...one has to think about what that means from both sides of the coin.
Let's take the banks and especially C for example.
So their credit card revenue is high.
Consumer will either
1. not be as active...with full balances but paying interest
2. default eventually, bankruptcy or consumer proposal
3. Find a way to pay balances off to lower expenses and not want to use them again
Additionally, face stiffer competition in the future by showcasing this revenue (if cotton prices are high, everyone wants to grow cotton)
Then you have to factor in all the other issues banks still face with other write-offs as consumers struggle...so there are future headwinds. This is what the market sees looking forward and why selling any premium off the credit card revenue lift is a smart trade.
Remember other probabilities as well: Gaps getting filled, mean reversion, being able to sell something that is priced in and buy something to hedge against it that is better. These types of opportunities for selling premium at the open are fabulous. Reminder, have your hedges to do at the same time or standing by to act immediately as required.
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