10/13/17 – Stocks Slightly Higher as Earnings Kickoff

Stocks Slightly Higher as Earnings Kickoff

  • Dow up 0.4%, S&P 500 up 0.2%
  • Banks Start 3Q Earnings Season
  • US Men’s Soccer Fails to Qualify for World Cup

Several big financial firms kicked off earnings season this week with JP Morgan, Wells Fargo, Citi and Bank of America reporting earnings. All but Wells Fargo exceeded earnings estimates, but it wasn’t all positive news. Trading revenue was down sharply, especially fixed income trading. While the steady rise in stocks this year has been great for regular investors, this lack of volatility hurts investment banks since this type of environment doesn’t lead to clients doing a lot of buying/selling. Loan volumes were also very mediocre. This hurts banks’ future profits and also raises some questions as to why personal and commercial loans aren’t increasing. Many economic indicators continue to look strong, but a slowdown in lending is somewhat concerning. Over the next three weeks we’ll get earnings reports from most major companies and their outlooks on the economy.

In a story that blends sports with the financial world, the US Men’s National soccer team failed to qualify for the 2018 World Cup in Russia. It took a confluence of events on the final day of qualifying and every break went against the US. Either way, the US team will sit out a World Cup for the first time in over 30 years. This has two fascinating financial aspects. First, Nike will likely miss out on significant sales of US National Team jerseys and other merchandise next summer. Don’t worry about Nike though, they still sponsor Brazil, France, England and Portugal, among others. The company will sell of a ton of soccer stuff next year during the World Cup.

The other issue is the pay disparity between the US Men’s and Women’s National Team. The main argument for the difference is the claim the men’s team generates more revenue for USA Soccer. Not qualifying for the World Cup is a big blow into the revenue the men’s team generates. For various reasons, US Soccer is one entity and revenues aren’t broken down publicly. TV revenue is an important source of money, but USA Soccer’s TV contract is a total amount for both men’s and women’s games. The women’s team has been wildly successful, often has better TV ratings and likely aren’t getting a fair share of the revenue they generate. I would love to see the organization split into two. It would be very clear how much revenue each team is generating and then players could be paid accordingly. Read More

Oil rose this week, increasing 4.2% to close at $51.38/barrel. The yield on the 10-yr Treasury moved lower, down to 2.28% from 2.36% last week. The average rate on a 30-yr moved higher, to 3.91% from 3.85% last week.

Close Weekly YTD
Dow Jones 22,871.72 0.4% 15.7%
S&P 500 2,553.17 0.2% 14.0%
Oil 51.38 4.2% (4.7%)
10-yr Treasury (∆ in bps) 2.28 (9) (17)

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