IBM Hit Hard by AI Spending Trends, Bank Earnings Fueled by Record Trading Hauls

**Zaid Admani** (0:00)
Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Tuesday, July 14th. In today's episode, we'll break down the latest inflation report and what Fed Chair Kevin Warsh just told Congress. We'll also tell you why big banks are making record profits and the warning from IBM that is tanking software stocks. Then stick around to the end of the show to find out why Chipotle is expanding to Mexico and why I think that it could work. We got a great show for you today.
Let's go.
Stocks got off to a bumpy start this week with the S&P 500 falling 0.8%, while the NASDAQ fell 1.6%. Chip stocks did most of the damage again. The semiconductor index fell nearly 5%, with all 30 stocks in the index finishing lower. Now chip stocks are bouncing back today, but we'll talk more about that in a bit. Investors are also paying close attention to Iran again. Oil surged nearly 10% after President Trump reinstated the US blockade on Iranian ships through the Strait of Hormuz. Brent crude is now trading above $86 a barrel and is up 13% in the past week. So the Iran war seems to be fully back on, and traffic through the Strait of Hormuz has already dropped by half. So we're gonna have to keep an eye on oil prices again, which could be a problem for inflation. That brings me to the CPI report. We got the June CPI report this morning, and the numbers were encouraging. The report showed that inflation slowed to 3.5% in June, down from 4.2% in May, and it was below the 3.8% that economists were expecting. On a month over month basis, consumer prices fell 0.4%, which was the biggest decline since April of 2020 That was right at peak COVID. Now the main driver here was gas prices, which fell almost 10% in June as the Iran conflict cooled down for a bit. But like I said, oil prices are surging again after the ceasefire with Iran has essentially collapsed, so this CPI report might not be painting the full inflation picture moving forward. And here's the thing, inflation is on top of mind for new Fed Chair Kevin Warsh, who is testifying in front of Congress as I record this. Now, in his prepared remarks, Kevin Warsh said the Fed has no tolerance for persistently elevated inflation, and he promised that if the Fed gets their monetary policy right, whatever that means, the inflation surge the last five years will be the thing of the past. So Kevin Warsh continues to talk tough on inflation, which indicates that he's open to a rate hike. But this June CPI report does give him some time to wait on what he decides to do. I think this war with Iran and oil prices will continue to play a factor here. For now, though, the market is celebrating stocks are ticking higher as I record this and traders have cut the odds of a July rate hike from 42% yesterday to around 16% today after the report. I'm really curious to see what else Kevin Warsh says in front of Congress. I'll recap anything noteworthy on tomorrow's episode along with everything else happening in the market. So if you're new here, it's a great time to get subscribed to the podcast and tune in every day to stay in the loop.
Let's run through some headlines and we're talking bank earnings. This morning, we got earnings from JP Morgan, Bank of America, Wells Fargo, Citi and Goldman Sachs, and all five beat expectations across the board. Let's get into the details here starting with JP Morgan. They're the biggest bank in America and they had a monster quarter posting their highest quarterly profit ever of $21.2 billion. The big driver for the bank was stock trading. Equity's revenue jumped 86% from a year ago to over $6 billion thanks to the market volatility last quarter. Investment banking fees also jumped 30% to nearly $3.3 billion. And they got a $4.6 billion boost from cashing in on a long held steak and visa. CEO Jamie Dimon said that every major business line hit record revenues last quarter. So it was a huge quarter for JP Morgan and Goldman Sachs painted a very similar picture. Revenues for Goldman Sachs came in at $20 billion with a big driver being stock trading. Goldman's equity traders pulled in a record $7.4 billion last quarter, which was up 72% from a year ago. This was actually the third straight quarter. The banks had an all time record for any bank ever. Investment banking also saw a huge quarter. Fees jumped 55% to $3.4 billion because remember, Goldman led the SpaceX IPO last month, which was the biggest IPO in history. Now moving on to Bank of America, they also beat on top line and bottom line. Revenues jumped 15% to $31.7 billion. And just like the rest of the banks, trading was a huge part of the story here. Bank of America's stock trading revenue jumped 70% to a record $3.6 billion, and investment banking fees were also up 50% to roughly $2.1 billion. CEO Brian Moynihan called it one of the strongest quarters in the company's history with every business segment posting double-digit profit growth. And what I found to be most interesting was the commentary about the consumer. Brian Moynihan said that consumers and businesses remain resilient despite high gas prices and inflation. Moving on to Citibank, they might have had the best story of the bunch. They reported their best quarterly revenue in a decade. Now, a quick background on Citibank. They're in the middle of a multi-year turnaround led by CEO Jane Frazier. And it seems like that turnaround is starting to work. The bank has been cutting costs and streamlining their business, and investors have noticed the stock has nearly doubled in the last 18 months. And in order to reward shareholders even further, Citibank announced that they were raising dividends by 12% and buying back $30 billion in stock. And finally, let's talk about Wells Fargo. They also beat on top and bottom line revenues came in at $22.6 billion, and profits jumped 17% to $6.4 billion. Now, Wells Fargo is also in the middle of a turnaround because they spent years operating under a regulatory asset cap because of that fake account scandal they had a few years ago. The asset cap limited how much the bank could grow, but it was finally lifted last year, and Wells Fargo is now starting to expand again. The bank is making more loans, growing its investment banking business, and taking on more trading clients. So yeah, the big picture here is that Wall Street is crushing it right now, thanks to the market volatility last quarter, and also the increase of mergers and acquisitions and IPOs. We had the Iran War, oil prices, AI bubble fears, and massive swings in tech stocks. Because of that, people have been trading stocks like crazy, and when hedge funds and investors trade more and make bigger bets, the big banks make more money. And then when you add in the mega IPOs and mergers, that's how you have these big banks making record profits. So yeah, I imagine the Rolex shops in Manhattan will be very busy come bonus season. Rolex might be too cheap at this point. Some of these bankers might be going for like a Richard Millet or something.