Saturday Night Fever

Quote of the Week: “I grew up in a world where Paul Volcker raised his rates 200 basis points on a Saturday night.” – Jamie Dimon, J.P. Morgan 4Q21 Earnings Conference Call

Volatile until the end, rates jump 9 basis points to end the week. Hawkish sentiment sweeped through markets today leaving the 10-year Treasury 8 bps higher at 1.78% and four fed hikes fully priced in for 2022. The Move Index, a measure of interest rate volatility, finally perked up after several days of declines, rising 4 points to 77. Price pressures continued to get plenty of airtime, this time from former Treasury Secretary Larry Summers who commented “we are basically moving towards higher entrenched inflation.”

Consumer power weakening? December data could be a harbinger for the state of the U.S. consumer in 2022. December retail sales were down 1.9%, well below analyst estimates, with nonstore sales dropping an astounding 8.7%. January consumer sentiment also fell lower than expectations and now stands at the second-lowest level in a decade. Consumers have had quite the ride over the past couple of years as unprecedented fiscal stimulus has helped U.S. consumers amass historical amounts of savings. However, like all good things, everything must come to end. Rising inflation has spooked the U.S. consumer and pandemic-induced federal benefits have dried up. One of these programs, the expansion of child tax credit payments, which has deposited on average ~$400 per month to American family bank accounts has come to an end today.

Big banks beat headline estimates, stocks retreat on trade revenue miss. J.P. Morgan, Citi, and Wells Fargo kicked off earnings season today with the three of the largest U.S. banks reporting headline revenue beats. However, much of the headline beat was driven by credit reserve releases, with J.P. Morgan and Citi reporting big losses from their trading units. JPM and Citi’s stock dropped 6.15% and 1.32%, respectively, on the day. The poor 4Q trading performance provided enough ammo for investors to pullback on the recent bank stock rally that has been driven by the rate sell-off that has shaped the first couple weeks of 2022. Wells Fargo was the exception on the day as the bank showed solid loan growth in 4Q while also taking a huge cut to its expenses heading into 2022, Wells Fargo’s stock rose 3.53% on the day.