The Quant Post – Newsletter
Here is what we cover this week:
- Weekly Market Overview
- Weekly Sector Update
- Earnings Highlights
- Stock Watch of the Week (UBER)
- Chart of the Week
Weekly Market Overview
- US equity indexes rose this week, boosted by strong earnings from major banks and increased expectations for slower monetary policy easing.
- The Dow closed at 42,863.93, up from 42,352.75 last week. The Nasdaq finished at 18,342.94, and the S&P 500 at 5,815.03, both higher than the previous week. Top sectors included technology, industrials, and financials, with Nvidia, Wells Fargo, and JPMorgan Chase leading among mega-caps.
- JPMorgan’s Q3 earnings and sales exceeded expectations, driven by gains in investment banking and healthy consumer spending, according to Raymond James.
- Wells Fargo also beat Q3 earnings estimates, boosted by trading gains and higher investment banking fees.
- September’s consumer price index readings were unchanged month-over-month but came in hotter than expected, with the annual headline rate cooling less than forecast.
- The producer price index (PPI) dropped more than expected month-over-month in September, though core PPI matched forecasts. Annually, headline PPI fell, while core PPI accelerated.
- The probability of a 25-basis-point rate cut on Nov. 7 rose to 90%, up from 83% the previous day, with a 10% chance of a pause and no expectation of a larger cut.
Weekly Sector Update
- Technology: The Technology Select Sector SPDR Fund (XLK) rose by 2.5%. Other tech ETFs, including iShares US Technology ETF (IYW) and SPDR S&P Semiconductor ETF (XSD), saw little activity. Aehr Test Systems (AEHR) jumped over 13% in premarket trading after reporting better-than-expected Q1 results.
- Industrials: The Industrial Select Sector SPDR Fund (XLI) rise 2.2% WoW, while Fastenal (FAST) gained 3.3% on higher Q3 sales.
- Consumer: The Consumer Staples Select Sector SPDR Fund (XLP) remained flat, while the Consumer Discretionary Select Sector SPDR Fund (XLY) declined 0.9%. Stellantis (STLA) dropped nearly 3% after a CFO appointment and CEO retirement announcement.
- Health Care: The Health Care Select Sector SPDR Fund (XLV) rise by 1.5%. Immatics (IMTX) rose 2.3% after pricing its public offering.
- Financials: The Financial Select Sector SPDR Fund (XLF) increased 1.9% WoW. BlackRock (BLK) gained 1.5% after posting strong Q3 earnings.
- Energy: The Energy Select Sector SPDR Fund (XLE) fell 0.4%, while W&T Offshore (WTI) rose 1.3% after filing a $500 million securities offering.
Earnings Highlights
- Wells Fargo (Q3 2024)
Key Financial Results:
- Net Income: $5.11 billion, down 11.3% year-over-year.
- Earnings Per Share (EPS): $1.42, beating the consensus estimate of $1.28.
- Revenue: $20.37 billion, slightly below the expected $20.41 billion.
- Net Interest Income: $11.69 billion, down 11% year-over-year.
- Noninterest Income: $8.68 billion, up 3% year-over-year.
Key Findings:
- Wells Fargo’s earnings beat expectations despite a decline in net income and revenue.
- The decrease in net interest income was primarily due to higher funding costs.
- However, the bank saw a rise in noninterest income, driven by higher investment banking fees and trading gains.
- The bank’s efficiency ratio improved to 64%, reflecting better cost management.
- Additionally, Wells Fargo’s credit quality remained strong, with a slight decrease in non-performing assets.
- JP Morgan (Q3 2024)
Key Financial Results:
- Net Income: $11.7 billion, up 8% year-over-year.
- Earnings Per Share (EPS): $4.40, surpassing the consensus estimate of $4.19.
- Revenue: $30.4 billion, up 2% year-over-year.
- Net Interest Income: $15.2 billion, up 5% year-over-year.
- Noninterest Income: $15.2 billion, flat year-over-year.
Key Findings:
- JP Morgan reported strong earnings, driven by credit reserve releases and higher net revenue.
- The bank’s performance was bolstered by robust trading and investment banking activities.
- The consumer and community banking segment saw a 6% increase in revenue, while the corporate and investment bank segment reported a 4% rise in revenue.
- JP Morgan’s asset and wealth management division also performed well, with a 3% increase in assets under management.
- The Progressive Corporation (Q3 2024)
Key Financial Results:
- Net Income: $1.99 billion, up 141% year-over-year.
- Earnings Per Share (EPS): $3.37, compared to $1.40 in the previous year.
- Net Premiums Written: $15.13 billion, an increase of 21% year-over-year.
- Combined Ratio: 88.5%, improving from 95.2% in the previous year.
- Investment Income: $1.2 billion, up 25% year-over-year.
Key Findings:
- Progressive reported significant growth in net income and EPS, driven by higher premiums written and improved underwriting results.
- The company’s strong performance reflects its effective risk management and pricing strategies.
- Progressive’s personal lines segment saw a 19% increase in net premiums written, while the commercial lines segment reported a 25% increase.
- The company’s combined ratio improvement indicates better profitability and cost control.
Shell plc (Q3 2024)
Key Financial Results:
- Net Income: $6.2 billion, down 15% year-over-year.
- Earnings Per Share (EPS): $0.80, missing the consensus estimate of $0.85.
- Revenue: $90.5 billion, down 10% year-over-year.
- Cash Flow from Operations: $12.3 billion, down 8% year-over-year.
- Capital Expenditures: $5.5 billion, up 5% year-over-year.
Key Findings:
- Shell’s earnings were impacted by lower oil and gas prices, as well as reduced refining margins.
- However, the company continues to focus on its energy transition strategy and optimizing its portfolio.
- Shell’s renewable energy and energy solutions segment reported a 20% increase in revenue, reflecting the company’s commitment to sustainable energy.
- The company also announced a $2 billion share buyback program, demonstrating confidence in its long-term strategy.
Stock Watch of the Week
UBER TECHNOLOGIES
- Uber (UBER) shares rose by 2.3% after the company announced the introduction of an AI assistant in its driver app.
- The AI assistant, powered by OpenAI’s GPT-4, is aimed at helping drivers transition to electric vehicles more smoothly.
- This move signals Uber’s continued push toward integrating advanced technologies and expanding its sustainability efforts.
- Uber’s stock has shown steady performance over the past few months, driven by strong earnings and a focus on profitability.
- Recent initiatives, such as expanding its electric vehicle (EV) offerings and implementing AI-driven solutions, have contributed to investor optimism.
- The stock has been benefitting from a positive sentiment toward tech innovations in ride-hailing and logistics, along with efforts to improve driver support.
- Analysts are cautiously optimistic, with Uber’s growth in mobility, delivery services, and logistics sectors seen as key drivers for its future performance.
Source: Trading view
Source: Bloomberg
Charts of the Week
- Companies with highest Operating Margins in the S&P 500 Universe:
2. Price vs SMA:
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