Strong Bank earnings may be overshadowed by inflation data

LONDON: Earnings season kicked off today with a bang as both JP Morgan Chase (JPM) and Goldman Sachs (GS) easily surpassed analyst's average estimates on the top and bottom lines. Despite the beats, neither stock moved much in pre-market trading.

JPM absolutely crushed it, setting an all-time high with its best quarter ever in investment banking. The only reason shares moved slightly lower after the earnings announcement might be because people are wondering if they can do it again. GS had worldwide dealmaking that was off the charts.

Before discussing banks in more detail, there was some inflation news this morning that's a bit unnerving. The June consumer price index (CPI) rose 0.9% from May, with the same gain for core CPI that strips out energy and food. Both were much higher than the 0.5% Wall Street analyst consensus. While the Fed keeps calling inflation "transitory," the question is how long transitory might be. The year-over-year CPI gain of 5.4% was the highest in 13 years. Core inflation growth of 4.5% was the highest since 1991.

It looks like the inflation gains might be stealing some of the sizzle from these strong bank earnings.

With these pretty amazing results, some of the nervousness around the banks has hopefully been put aside. It's not certain every bank can put up numbers like these, but we're off to a pretty darn good start. This is only day one of a long road when it comes to earnings season, naturally. It's kind of like, "Next man up." We'll have to see what the pattern will be. It's a great first day, but it's just one day.

Putting things into perspective, some of the bottom line gains came from the banks releasing reserves they'd put aside during Covid for reserve against possible losses on loans. You could argue that this aspect of earnings isn't really the same as organic growth.