BofA and Goldman Sachs Beat, Retail Sales Surge, Chips Slump, Starboard's Jeff Smith on News Corp. 10/17/23

SPEAKER_1 (0:00)

What's on the horizon for financial markets?

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David Faber (0:31)

Market insight and analysis. You're listening to the opening bell of CNBC's Squawk on the Street.

Sara Eisen (0:36)

Good Tuesday morning and welcome to Squawk on the Street. I'm Sara Eisen with Mike Santoli, live from Post 9 of the New York Stock Exchange. David Faber joins us today from the 13D Monitors, Active Passive Investor Summit happening in New York City today. More on that in just a moment.

Carl Quintanilla is on assignment taking a look at futures this morning. We are set up for a lower open Dow futures down about 100 points after we gained 1% yesterday on the major averages. The S&P futures down 25, digesting better bank earnings from Bank of America and Goldman Sachs. And hotter retail sales, we're also seeing higher bond yields. That looks like it's standing in the way of the rally this morning. Our roadmap is going to begin with a slew of corporate results. Goldman and B of A both delivering beats. J&J raises its full year sales forecast.

And Lockheed Martin says it expects to grow sales this year.

David Faber (1:26)

Plus retail sales coming in much stronger than expected. The 10-year, well, that is rising. And stocks are on track, as Sara just told you, for what looks to be a lower open about 29 minutes from now. And Fresh Off reports plans to see changes at News Corp.

Or perhaps at least liking what it means as an investment. Starboard's Jeff Smith is going to join me this hour, live from the 13D Monitor's Active Passive Conference, which we cover every year. Chock full of activists. We start, though, with Bank of America and Goldman Sachs, of course, both post quarterly results that were above at least what most analysts had been anticipating. B of A seems to be the outperformer right now when it comes to the market, although again, we haven't opened as yet. Mike, you know, both coming in better, both with certainly their share of concerns as well.

Whether it be with Goldman in terms of the continued drag that consumer has on the business, even though it's such a small percentage overall, or Bank of America's balance sheet, which we've talked about many times. And that large bond portfolio, average duration, far longer than many other banks that obviously has a lot of embedded losses, not gonna realize those, but nonetheless does have an impact on net interest income, but better than expected net interest income this quarter.

Mike Santoli (2:46)

Yeah, and David, all those concerns are ones that we've pretty much had in front of us before the report. So we knew they were gonna be a drag. We knew there was gonna be a little bit of messiness in some of the results. And so the only suspense was, do we have any further bad surprises in the numbers? Are the credit trends looking worrisome or not?

And what is the core business? How is it operating right now? And how are ultimate end customers doing? And it seems on all those fronts, more or less reassuring.

It seems like Bank of America continues to plug ahead in the core business.

Net interest income actually up pretty healthily over the prior year. Even capital markets for both companies.

Goldman Sachs, very strong fixed income and currency and commodities trading.

And sometimes in a given quarter, that's a little bit of like, it's a zero sum game among the banks. Some of them got it right. Some of them didn't. And maybe the market doesn't put a big multiple on those earnings on a short term basis. But I think it was okay. And I think that's the push-pull, Sara, that you mentioned in this market, which is fundamentals looking okay. The banks so far have given you nothing new to worry about, and yet higher bond yields are the big worry point. And we have a stronger-

Sara Eisen (3:55)

No, everything's too good, right?

Mike Santoli (3:56)

Than expected economy, exactly.

Sara Eisen (3:58)

Lots of bank beats and then retail sales are strong. Look, the Bank of America, by the way, just from the call, the CFO says it is raising the net interest income forecast in 2023 to about 9%. So following in the footsteps of Wells Fargo, which also raised its net interest income forecast, David, you mentioned the big worry was on the balance sheet this quarter, right? They did raise the amount, $131.6 billion of those unrealized losses on securities held to maturity in the third quarter. That was up from 106 billion in paper losses in the second quarter. Again, they're paper losses and it's confusing of just how much investors should be paying attention and worrying about this. Cause I spoke to a number of analysts last night about this issue.