Iran Turmoil Shakes Up Markets, Bank Earnings Land, Kiss of Debt Securities
Markets wobble as Trump weighs in on Iran unrest, the big banks report, investors are loving long-term U.S. debt securities.
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Help!
Help me if you can, I'm feeling down
And I do appreciate your being 'round
Help me get my feet back on the ground
Won't you please, help me?
- McCartney, Lennon (The Beatles), 1965
The Wobble
Financial markets did not move around all that much on Tuesday. There was some strength in Treasury debt securities. There was some visible safe-haven type strength precious metals. There was some volatility in equities. Why the wobble? Not so much because December consumer inflation printed on the cool side. That should be a net positive, though there were some holes in the data. Not so much because JP Morgan Chase (JPM) got the fourth quarter earnings reporting season off to a shaky start, though that did not help.
It was more about the current turmoil inside Iran and Pres. Trump's comments concerning that situation that rattled a few cages. As the Iranian economy has hit runaway inflation and fallen on hard times, the Iranian people have taken to the streets across that nation to protest the theocratic regime. This past Thursday, the Iranian government shut down the internet across the country and vowed a harsh crackdown on the protesters. The number of Iranian deaths and arrests is believed to have escalated quite rapidly since that point.
On Tuesday, President Trump posted to his Truth Social account: "Iranian Patriots, KEEP PROTESTING - TAKE OVER YOUR INSTITUTIONS!!! Save the names of the killers and abusers. They will pay a big price. I have cancelled all meetings with Iranian Officials until the senseless killing of protesters STOPS. HELP IS ON ITS WAY. MIGA!!!"
The president also mentioned Iran later on when speaking with reporters.
From Detroit, Michigan... the president said: "Make Iran great again."
Trump added that Americans in Iran should consider evacuating that country and when discussing the regime's crackdown, stated: "I hear different sets of numbers. Look, one death is too much."
When told that Iran had threatened to retaliate should there be any US attack, President Trump said, "Iran said that the last time."
Logistics
According to the Wall Street Journal, the U.S. Navy only has six warships in the Central Command area (Middle East) at present. Those six include just three destroyers and three littoral combat ships. Littoral combat ships, for those readers who do not know, are smaller vessels built for speed that best serve in shallower waters as submarine hunters and in mine-clearing.
While it is true that during the strike in June that took out Iran's nuclear capabilities, most of those bomber aircraft came all the way from the U.S., regionally stationed fighter aircraft played a significant supporting role. U.S. naval forces, due to their current concentration in the Caribbean, are not optimally set up to play a supporting role in western Asia at this time. Then again, I have no intelligence on the matter that is not readily available to mainstream media. There could be something I don't know.
Here Come the Banks...
JP Morgan kicked off "the season" on Tuesday and disappointed some investors. Though "adjusted" earnings and company-wide revenues beat expectations, there were a couple of trouble spots. For one, the bank announced last week that it would replace Goldman Sachs (GS) as the banking partner for Apple's (AAPL) credit card. This transition is still a couple of years off, but JPM recognized a $2.2 billion provision for credit losses for the reporting period tied to that deal.
Additionally, and perhaps much more importantly, JPM's investment banking business shocked to the downside. The investment bank generated $2.35 billion in sales for the fourth quarter amounting to a 5% year-over-year contraction. At least part of the blame for the downside surprise was placed on deals that were pushed into the first quarter, but not all of the blame. This makes Q! underwriting fees the item to watch for the current quarter.
I also want to see how the investment banking businesses did at the other large U.S. banks. Between today and tomorrow, we'll hear from Bank of America (BAC) , Wells Fargo (WFC) , Citigroup (C) , Goldman Sachs (GS) , and Morgan Stanley (MS) .
Tuesday's Child
Equity markets, as mentioned above, got sloppy on Tuesday. After a somewhat wild ride, the S&P 500 gave back just 0.19%, while the Nasdaq Composite surrendered a mere 0.1%. The KBW Banks suffered a 1.26% beatdown, obviously led by JPM's 4.2% decline. However, the Philadelphia Semiconductor Index popped for a gain of 0.95%, led by Intel (INTC) and Advanced Micro Devices (AMD) . Those two names were up 7.3% and 6.4% respectively.
The good news is that six of the 11 S&P sector SPDR ETFs closed out the Tuesday session in the green. The bad news was that though Energy (XLE) was the Tuesday champ, three of the top four performing sectors were defensive in nature as investors prepped (I mean keyword reading algorithms tried to force artificial momentum ahead of) for possible military operation. As you already suspected, the Financials (XLF) rode the Tuesday train in the caboose.
Breadth
Market wide performance was largely sour on Tuesday. Winners did beat losers by a tight seven-to-six margin at the NYSE, but losers beat winners by a rough five to four at the Nasdaq. Advancing volume took a 47.9% share of composite Nasdaq-listed trade and a 44.4% share of composite NYSE-listed activity.
Interestingly, aggregate trade was elevated from the day prior across the listings of both exchanges, despite that winners beat losers at one exchange and losers beat winners at the other. Does that sort of negate any technical impact from the day's activity. Sort of. Equity index futures are weaker this morning ahead of those banking earnings, but also ahead of December retail sales and a plethora of data-points connected to producer level pricing.
Then again, nobody on Wall Street is awake yet, so this is mostly algorithmic activity and European traders pressuring those futures markets.
True Love
Investors were loving some long-term U.S. debt securities on Tuesday. One day after the U.S. Treasury Department ran a very successful auction of $39 billion worth of new U.S. Ten-Year paper, the department raffled off another $22 billion in brand spanking new Thirty-Year U.S. bonds.
For this auction, the high yield awarded was 4.825%, which stopped through the 4.833% where the "when issued" had been trading. Bid to cover was strong, at 2.418, up from December's 2.365 for this series. The breakdown was quite impressive as well. Indirect Bidders (foreign accounts) took down 66.8% of the issuance while Direct Bidders (the home team) grabbed 21.3%. Dealers were stuck with a just 11.95% slice of the pie. late 2025 averages were close to 12.4%.
Economics
(All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.25%.
07:00 - MBA Mortgage Applications (Weekly): Last 0.3% w/w.
08:30 - PPI (Oct): Expecting 0.3% m/m, Last 0.3% m/m.
08:30 - PPI (Nov): Expecting 0.3% m/m, Last ?
08:30 - Core PPI (Oct): Expecting 0.1% m/m, Last 0.2% m/m.
08:30 - Core PPI (Nov): Expecting 0.2% m/m, Last ?
08:30 - PPI (Oct): Expecting 2.7% y/y, Last 2.7% y/y.
08:30 - PPI (Nov): Expecting 2.6% y/y, Last ?
08:30 - Core PPI (Oct): Expecting 2.6% y/y, Last 2.6% y/y.
08:30 - Core PPI (Nov): Expecting 2.5% y/y, Last ?
08:30 - Retail Sales (Nov): Expecting 0.4% m/m, Last 0.0% m/m.
08:30 - Core Retail Sales (Nov): Expecting 0.4% m/m, Last 0.4% m/m.
10:00 - Existing Home Sales (Dec): Expecting 422K, Last 413K, SAAR.
10:00 - Business Inventories (Nov): Expecting 0.3% m/m, Last 0.2% m/m.
10:30 - Oil Inventories (Weekly): Last -3.831M.
10:30 - Gasoline Stocks (Weekly): Last +7.702M.
The Fed (All Times Eastern)
09:50 - Speaker: Philadelphia Fed Pres. Anna Paulson.
10:00 - Speaker: Reserve Board Gov. Stephen Miran.
12:00 p.m. - Speaker: Atlanta Fed Pres. Raphael Bostic.
12:00 - Speaker: Minneapolis Fed Pres. Neel Kashkari.
2:00 - Beige Book.
11:00 - Speaker: New York Fed Pres. John Williams.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: (BAC) (.95), (C) (1.62), (WFC) (1.69)
At time of publication, Guilfoyle was long JPM, INTC, AMD equity
