Stocks slip, big banks kick off earnings season

A trio of big banks kicked off earnings season on Friday morning, with JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) all reporting their quarterly results.

To discuss the market outlook following these earnings, IG North America CEO JJ Kinahan joins The Morning Brief.

Focusing on JPMorgan's earnings specifically, Kinahan says the stock fell due to "some of the statements that came out around it." He notes that JPMorgan Chase CEO Jamie Dimon stated the bank was under pressure due to "factors that were out of their control" and was preparing "for a large variety of outcomes." As markets hope earnings season will carry stocks to the upside, Kinahan explains that with "so much going on in the macroeconomic environment" combined with rate cut uncertainty, "the market is struggling."

Kinahan suggests that if interest rates remain unchanged, markets may be able to "stay in a trading range." However, he expresses concern about the performance of the "Magnificent Seven" tech giants, which he now sees as the "magnificent two or three," with Microsoft (MSFT) and Amazon (AMZN) potentially emerging as the top performers despite the high-rate environment.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post is written by Angel Smith

Editor's note: The headline was updated to reflect bank earnings' results more accurately.

Video Transcript

BRAD SMITH: Futures, as we mentioned, moving lower this morning after results from the big three banks underwhelmed investors. So what do the results signal for the broader markets and the economy? Let's bring you in JJ Kinahan, who is the IG North America CEO to help answer that question. JJ, great to have you here in studio with us. I'll jump over to the set in a hot second, I promise.

But we got to know, as you get these prints that come out over the course of this week and we begin a new trading or a new earnings season, what is the theme that could prevail as we hear more about what CEOs are saying about the macroeconomic backdrop, whether that be in travel like delta or whether that be in banks like we have seen with JP Morgan, Wells Fargo, and Citi this morning.

JJ KINAHAN: Yeah. I think that this is-- every earnings season, of course, what the CEOs say is probably one of the more important factors, but a lot of times you're looking at the earnings themselves. What we're looking at this time, though, and I think if you think about JP Morgan's earnings this morning, one of the reasons that the stock fell after the earnings came out is some of the statements that were around it.

You know, Mr. Dimon talking about the fact that there were a lot of factors that, I'll say, were out of their control that could affect things, that they had-- I'm paraphrasing, of course. But they had to prepare for a large variety of outcomes. That's not something you normally hear. You normally hear we're going to stay with this plan, et cetera. So I think there's so much going on in the macroeconomic environment.

You guys just had a really smart discussion about interest rates. The interest rate environment has really been the most confusing. It's what's been driving the markets. You guys talk about it every day because it is such so newsworthy. Just looking at June and September right now, if I look at the CME FedWatch tool and see what's happening in terms of expectations. The expectation of a June rate cut is now down to about 23%.

What's more interesting to me is I look out at September, we have about a 76% probability of a rate cut. But having a 50 basis rate cut and staying exactly the same as we are now is the same probabilities. To me, that's really incredible considering we're seeing that June has such low probabilities overall. So again, I think that's why the market is struggling a little bit here in terms of trying to figure out what this actually means.

SEANA SMITH: So what do you think is likely going to be the action going forward if we in fact maybe don't get any rate cuts this year? Will we see more pressure on the markets? Or will we see maybe the sell off that we saw earlier this week really just be a blip in terms of some of that longer term momentum then to the upside?

JJ KINAHAN: If we don't do anything on rates, I actually think we have a nice opportunity to stay in a trading range. The one area that I worry about if this happens is going to be, of course, the Magnificent Seven because I think that that's down to a magnificent two or three at the moment perhaps. But again, will they be able to hold this support as we go higher. And as I said the Magnificent Seven, I both saw you look at each other.

BRAD SMITH: It's practically the Final Four now. Yeah.

JJ KINAHAN: Exactly.

SEANA SMITH: But you mentioned it might just be down to one or two. I guess, what are one of the two names that you think would be able to weather a higher for longer environment better than the others?

JJ KINAHAN: I think that the two that really stand out to me are Microsoft-- you know, it's interesting I look at even our clients behavior through Tasty Trade. And that is Microsoft is always just a perennial favorite no matter what is going on. They are such a strong franchise overall. As you all know, they've been incredible at AI, et cetera.

And the other one is Amazon. And the reason I say Amazon primarily is just because if you think-- I think we tend to underestimate how many businesses they're actually in. And one of their businesses, it seems to me, is always doing well.

BRAD SMITH: When you think about how investors are trying to position themselves best in a no rate cut 2024 perhaps, what is the top trade that you see emerging right now? And is it more piling into some of the overcrowded trades that we've seen or is there some divergence that's starting to emerge?

JJ KINAHAN: No, you see a little bit of a divergence. So one thing to keep in mind with retail investors, when the market sells off, they tend to trade a lot more indices and index-related ETFs, you know, SPY, QQQ. When we see the market start to rally or continue to rally is when you start to see more divergence. And in the last few weeks. What's been really interesting to me, the stock has been most bullish over the last week has actually been GE. And talk about going old school.

BRAD SMITH: That's one of your top picks right now too.

JJ KINAHAN: Yeah, old school with the new business, if you will. And so that one has been really interesting to me to see as the top most bullish one. The other two that kind of stand out are Newmont Mining, obviously related to gold. And then we see Meta as a third one. So I didn't mention that as one of the Magnificent Seven.

I just think that that's a stock that they came out earlier this week. They had a couple of really big upgrades. And they talked about some of the more controls, I guess you'd say, for teenagers online. And I think that resonates with a lot of parents.

BRAD SMITH: And just lastly while we have you, is GE just the thesis that they've finally been able to split up and make sure that they can delineate between the financial and grouping together electric versus power, renewable energy, GE Digital, energy, financial, and whatnot and separate those?

JJ KINAHAN: Yeah. And you see GE Healthcare actually doing well also. So this is one where the parts were much greater than the sum, it seems.

BRAD SMITH: All right. JJ Kinahan--

JJ KINAHAN: Thanks for having me, guys.

BRAD SMITH: --IG North America CEO, great to see you. Thanks for joining us.