Finimize - 👜 Hermès lived it large

What’s Going On Here?

Three giant US banks reported expectation-shattering results on Friday.

What Does This Mean?

After Silicon Valley Bank’s collapse triggered a banking crisis last month, all eyes were on JPMorgan (JPM), Citigroup, and Wells Fargo's results, as rough indicators of the sector’s general health. And the results were surprisingly good at first glance. Sure, deposits at JPM and Wells shrank compared to the same period last year, and Citi's stayed flat, but it wasn’t all bad news: higher interest rates boosted their net interest income – that’s money they make from loans, minus payouts on deposits – by an impressive 49% for JPM, 45% for Wells, and 23% for Citi. That helped soften the blow of downturns in areas like investment banking, hampered by sluggish deal-making and tepid stock markets. In the end, then, all three banks managed to outdo expectations for revenue and profit last quarter.

Why Should I Care?

For markets: Gathering storm.

JPMorgan said the US economy is faring well, but it did warn of "storm clouds" on the horizon. That’s a common feeling, too: all three behemoths upped their reserves for bad loans, and that move’s pretty telling. Remember, these banks have their fingers in every part of the economic pie, so if they're all treading carefully, it’s probably for good reason. That could explain why the US stock market barely budged after the news, despite the banks' impressive headline digits.

The bigger picture: Domino effect.

If recent tremors make banks more selective with their lending, then they could make a downturn more likely. After all, increased choosiness would tighten the noose on borrowing for consumers and businesses, who are already dealing with high interest rates. And while big corporations, cushioned by sizable cash reserves, might be all right at first, smaller businesses could soon find themselves in hot water. Those underdogs are the lifeblood of the US economy, though – so everyone else could follow suit.

What’s Going On Here?

Hermès’s quarterly results showed it’s outshining luxury rivals.

What Does This Mean?

Hermès is in a league of its own at the moment. While China’s lockdowns dented competitors’ sales toward the end of last year, Hermès seemed completely unruffled – and this past quarter’s hefty Chinese New Year sales suggest the firm’s only going from strength to strength. And it’s not just thriving in China. While rival LVMH stagnated in the Americas, Hermès saw some luxe stateside growth, with a winning combination of brand desirability and waiting lists keeping demand hot. That helped Hermès's watches division forge right ahead too, even as top Swiss watchmakers warned of a potential slowdown – and the firm’s ready-to-wear offerings and handbags didn't leave any money on the table either. All in all, sales rose 23% yearly (excluding currency fluctuations), easily outstripping the anticipated 16%.

Why Should I Care?

For markets: Classy cash.

Hermès’s stock is up over a third this year, outperforming market leader LVMH – and just last week, its valuation crossed the €200 billion ($220 billion) threshold for the first time. That might be down to the ace Hermès has up its (silk) sleeve. See, the firm’s classic styles are a hit with older (and even wealthier) luxury shoppers, who are less vulnerable to economic slowdowns. So keep an eye on the valuation gap between Hermès and market leader LVMH – if the former can stay on track, there’s a good chance it’ll keep narrowing.

Zooming out: King of the castle.

This luxury boom will have shareholders popping open the Moët et Chandon – especially Bernard Arnault, whose family owns half of LVMH. Last week Arnault’s fortune surged to an eye-watering $210 billion, cementing his position as the world's richest person and outshining Elon Musk’s $180 billion. And that makes sense: Tesla’s having to slash prices to increase demand, but LVMH’s designer offerings are still sitting pretty – and pricey.