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Today's big stories

JPMorgan Chase and Goldman Sachs announced better-than-expected results to get earnings season underway
European bank stocks are still bafflingly underrated, and there’s one tidy way to invest in their potential resurgence all at once – Read Now
PepsiCo announced stronger-than-expected quarterly earnings, partly boosted by the higher prices of its products

Flying Colors

What’s Going On Here?

JPMorgan Chase and Goldman Sachs kicked off earnings season with stronger-than-expected second-quarter results on Tuesday, setting the tone for their investment banking rivals to come.

What Does This Mean?

Both JPMorgan and Goldman saw their profits shoot past expectations, sure, but the real story could be found elsewhere. Revenue from their trading businesses was down versus the same time last year, although – as JPMorgan’s CEO pointed out last month – that was all but inevitable when activity was so high this time last year. Dealmaking revenue, meanwhile, was firing on all cylinders: Goldman’s segment – which advises businesses on stock market listings and company acquisitions – had its second-best ever quarter, while JPMorgan’s did a brisk, expectation-beating business too.

Why Should I Care?

Zooming in: Big banks have divergent futures.
It’s easy to lump big US banks together, but to understand why JPMorgan’s share price has only risen 24% this year versus Goldman’s 44%, it’s worth looking at where they differ. JPMorgan is widely seen as a trading powerhouse, particularly in currencies, commodities, and “fixed income” (i.e. bonds). A post-pandemic recovery, then, isn’t great for the bank, since there’ll be a lot less volatility to trade on. Goldman, on the other hand, is a deal factory. And since dealmaking’s on track for a record year – and since that momentum is expected to continue for at least a couple more – the bank should benefit in the long term.

The bigger picture: Europe’s banks are waiting in the wings.
JPMorgan also announced that it’d keep buying back its own shares, which shouldn’t come as much of a surprise: US banks have been rewarding their investors ever since the Federal Reserve – which banned buybacks during the pandemic – gave them the go-ahead last month. Europe’s central bank isn’t being quite so generous, but investors are hopeful that it’ll let the region’s banks loose later this year too.

You might also like: The hows, whys, and “huh?”s of investing in financial services stocks.

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2. Analyst Take

European Bank Stocks Are Still Underrated

What’s Going On Here?

European bank stocks haven’t exactly covered themselves in glory over the last decade: they’ve been among the worst-performing stocks in the region.

But that’s all changed this year, with the sector having posted some of the biggest gains around: Europe’s STOXX 600 Banks Index is up more than 60% from its September lows.

Thing is, there are still so many factors working in bank stocks’ favor that it doesn’t look like this run is anywhere near over.

They’re cheap, for one thing: the banks in the STOXX 600 are worth 15% less than US banks on average, and 45% less than the wider European stock market.

That’s today’s Insight: all the reasons European banks are a good bet right now, and how to add them to your portfolio in one tidy investment.

Read or listen to the Insight here

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