Highlight of the Week
Bank Earnings Report Overview
- Bank of America (BAC) beat revenue expectations and was up 13% YoY. BAC also paid more for deposits in Q1, 1.38% in interest vs 0.96% in Q4.
- U.S. Bancorp, Western Alliance and Citizens Financial Group reported a drop in deposits. While PNC and Ally Financial reported stable to slight increases.
- JPMorgan, BAC and Citigroup reported that Investment banking fees were down an average of 21% YoY. While Net Interest Income (NII) saw increases across the banking sector as a result of the continued rate hikes.
- Profits rose at JPMorgan, Citigroup and Wells Fargo in Q1. However, the three banks set aside almost $2 billion for potential loan losses. Wells Fargo specifically stated the funds are for CRE loans, particularly in the office space sector.
Rate Curves
Rapid Report:
Fed Funds Rate (FFR) Hike Period Analysis
- Last week, we looked at the Max Drawdown in the S&P 500 during periods when the FED cuts the Federal Funds Rate. We noted that during these periods the average maximum drawdown was around 26%.
- This week, we look at Holding Period Returns (HPR) in the S&P if one were to buy before the first rate hike and sell once the rate began to fall.
- While rate hike periods tend to carry a negative connotation, annualized returns in the S&P often keep track with historical returns (6-7%).
- Losses tend to occur when the slope for the period, the difference in the highest rate vs lowest rate over time, is elevated and hikes are event driven (Inflation or Recessions) rather than hikes tied to a shift in policy.
