Hincks: Brace for "Mixed" Big Banks Earnings, CPI & PPI Will Prove Crucial for Fed

[00:00:00] Speaker 1: Kevin Hanks is with me to kick it off from the CBOE, our pre-Bell playbook, as we start a new week. We'll have lots of bank earnings. Good morning to you. So, some of your thoughts here as we kick it off. Good morning. [00:00:15] Speaker 2: Good morning, Nicole. Yeah, the good news is we've made it to third quarter earnings season. We'll get FedEx after the bell today, and then we start with the banks tomorrow. Goldman Sachs, J.P. Morgan, Wells Fargo, Citigroup. We'll get those big names Tuesday morning, and that'll really set the tone for earnings season because that group, that sector, has sold off the last, oh, 30, 45 days. So, we'll see if the numbers are good or concerning, or it's maybe just part of their business that is struggling. So, a lot to go through in terms of banks' earnings. But even as we get to third quarter earnings season, we can't get away from geopolitical headlines, that's driving crude oil, that's driving yields, the news. You know, you can take the news about the U.S. and Saudi Arabia. You can take the news about the ceasefire, the energy ceasefire between Russia and Ukraine, and put it all together, and what is it? It's more escalation, not de-escalation, because you look at the final proxy on that, and that is crude oil prices. And they're currently up, last time I checked, about 2% this morning, Nicole. So, more problems, more geopolitical risks out there, as we look towards earnings and key inflationary economic data, Nicole. [00:01:38] Speaker 1: Look, with the banks, I just want to stay on that for a moment. I think about the fact that we had a very tough September, right? And also, now we're going to look, as we have a higher for longer yield environment, the loan growth, what kind of rotation they're talking about, the net interest income. Looking forward to hearing from some of these banks about some of these details, right? [00:02:05] Speaker 2: Yeah, it's a mixed bag when you think of higher interest rates. Obviously, savers, interest does better for banks. Net interest income does better for banks. But housing is a key part of also mortgages, right? For a company like Wells, a bank like Wells Fargo does a lot of mortgages. And so, housing being basically dead in the water is problematic. Deals, they, remember, it set out, this all started out, this sell-off, started out about a month and a half ago when Bank of America said some of their deal data was going to be flat and not growing. So, that put a little bit of concern in the bank stock. So, we'll see. I still expect, Nicole, these banks to put up great numbers. It may be this part is weaker, but this part is stronger. It may be one of those scenarios. And you've got to sift through the data to decide if the stock should go higher or lower. But I think the banks will be a big mixed picture because some banks will do better than others. I think the trading banks will have a different story than the money center banks. So, yeah, it's going to be real interesting when these come out. It'll be those on Tuesday and then Morgan Stanley and Bank of America on Wednesday. So, we'll get a real good taste at that sector in the next couple days. [00:03:22] Speaker 1: Yeah, really looking forward to that, right? The higher rates really do lift that interest income. That'll be the bright spot. I want to hear how investment banking is doing. That's the big picture there. So, we'll have to wait and see. We are seeing some of the banks looking a bit higher here this morning. Let's talk about the inflation data, which is obviously such a key part of life because we'll see what the Fed does and how they take this in. CPI, PPI. [00:03:46] Speaker 2: So, we get four looks at inflation during the month. We've already gotten one, which is wages on non-farm payrolls. That was lower than expected and slightly and coming down. CPI has also been coming down, but this month we could get a little uptick in some of the data or affirming. Right now, the expectations for CPI are up 0.6 month over month, 3.6% year over year in headline CPI. That would be up two-tenths if it comes in at consensus. For core CPI, the expectations are up 0.2% and 2.5%. That would be up a tenth from last month. Now, the good news is these numbers have all been tracking lower lately. If you look at the last 6, 9, 12 months, they've all been coming down. But the Fed members are saying that they're still above target. They're still too high. They raised rates. So, we'll see if that's any slowdown. Or because of energy prices, if it's starting to leak in and cause all these numbers to firm up. But CPI will be the number one data point of the week. PPI, though it's important, those numbers are actually looking a bit lower when they come out for their year-over-year numbers. And then we'll get retail sales data. Remember, last week we got Bank of America Consumer Checkpoint data that was up 0.9% month-over-month and 4.5% year-over-year. So, really strong data from the Bank of America Consumer Checkpoint. Let's see if that correlates into stronger retail sales data. So, I'm looking for CPI and I'm looking for retail sales with the strength of the U.S. consumer. Those are the two big data points of this week, Nicole. [00:05:31] Speaker 1: And I think also about earnings season. We talked a lot about the banks, but this is going to be yet another earnings season with double-digit percentage growth, right? As we've seen 70 quarters at this point now that we're talking about this. And so, I know Google and Amazon sort of skewed the numbers to the 50% growth. If you took those out, it was 30% growth. But we are still expecting some very strong earnings this season. Do you have a quick thought? And then I want to get to some upgrades. [00:06:00] Speaker 2: Yeah, and that's keeping, you know, stocks elevated into this number despite what's going on with geopolitics because traders are starting to look for third-quarter earnings data. And the numbers, depending on who you read, somewhere between 25% and 30% higher for earnings. It's going to be hard to sell off a market that's doing that. Doesn't mean you can't sell off certain sectors of the market, but it'll be very hard to sell off a market that's increasing earnings by 30% quarter, year over year, Nicole. So, yeah, watching those numbers come out over time, that's what I love about earnings season. It's a big market made up of a bunch of individual stories. And that's what we're getting starting, really, tomorrow morning. [00:06:43] Speaker 1: Kevin, Hanks, great to see you. I also just wanted to touch on the upgrades and downgrades. You have one that you want to feature. [00:06:53] Speaker 2: Salesforce, Bank of America, playing a little catch-up here in Salesforce. They went from underperformed to a buy. And basically what they're saying is a lot of the worries about, you know, AI taking away Salesforce business is overdone. They had a $160 price target. They raised their price target, Nicole, to $285. So some of that's a catch-up. But the double upgrade is a nice move and basically relieving some of the fears that AI is going to take away their customers. You know, Salesforce should have a pretty good day based off this letter just because of what it said. The message about it and the big upgrade, double upgrade in terms of the rating level and a big price target hike, Nicole. [00:07:41] Speaker 1: Yeah, looking up about 3.4% today. Other upgrades, Pepsi, T-Mobile, Humana on the downside. Interesting to see some of these tech stocks getting some down. We're going to go through these. But Microsoft, Palo Alto. We also have Palantir, Adobe, and Snowflake with some downgrades. Great to see you, Kevin Hanks, live at the CBOE. Thank you.