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Today in the Market (10/17/2022)

Good Evening. U.S. equities rose on Monday, boosted by a slew of positive bank earnings reports and the U.K.’s reversal of tax cut plans. — as investors gathered for a significant results week.

The S&P 500 ended the day up 2.65%, while the Dow Jones rose 1.86%. The Nasdaq Composite Index increased by 3.43%.

EARNINGS

Bank of America Corp. (BAC) recorded its best quarterly net interest income in at least a decade, as the lender benefited from the Federal Reserve’s interest-rate hikes and debt traders outperformed analysts’ expectations.

  • Revenue: $24.5 Billion vs. $23.6 Billion expected
  • Earnings Per Share: $0.81 vs. $0.77 expected

The most notable metric was the Net Interest Income (NII), which is the profit banks generate on loans and bonds after deducting the cost of funding those assets. NII was one of the most significant developments throughout the quarter. NII for the quarter came in at $13.8 billion, $1.4 billion higher than the previous quarter, due to the rising interest rate environment, which is raising the yields on numerous bank loans and bond holdings. 

With that, CEO Brian Moynihan included the following in the statement: Our US consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts.

BOND SALE

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In an effort to return to normality in the wake of a severe selloff in UK assets, the Bank of England announced it would resume corporate bond sales.

The move comes after the BOE halted sales in response to a run on UK gilts caused by the government of Liz Truss’s failed fiscal plan. It announced that it will resume multi-stock auction sales commencing the week of October 24. On October 31, active government bond sales are scheduled to commence.

How did we get here? The decision was made on the first trading day after the BOE halted its emergency bond buying program, which it used to help stabilize markets and avoid a fire sale of gilts used in certain pension fund plans from roiling the UK’s financial markets.

THE WEEK AHEAD

Earnings season: This week, a number of industry heavyweights, including Netflix, Tesla, IBM, Goldman Sachs, and Procter & Gamble, will announce their quarterly financial results. Despite the bleak economic prognosis, bank executives reported this week that consumers remained in relatively excellent shape.

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