🥊 JPMorgan vs Goldman Sachs

JPMorgan and Goldman rear their heads | Raise a toast to Pepsi |

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Today's big stories

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

Flying Colors

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.

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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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Back In Fizzness

Back In Fizzness

What’s Going On Here?

Drinks are on PepsiCo: the American food and drinks giant announced stronger-than-expected second-quarter earnings on Tuesday.

What Does This Mean?

Investors can sit back, relax, and pop open a can: Pepsi reported “organic revenue growth” – i.e. minus the effects of currency swings and acquisitions – of 13% compared to the same time last year, beating shareholders’ already-high expectation of 8%. That was partly because Pepsi upped the prices of its drinks and snacks, which kept its profit from shrinking even as its costs rose. And since people tend to buy its “consumer staple” products no matter what, the strategy worked: the company’s quarterly profit beat expectations. Its outlook came in stronger than expected too, with Pepsi now expecting to grow organic revenue by 6% and profit by 11% this year – up from roughly 5% and 9% respectively.

Why Should I Care?

For markets: Prices are rising across the board.
Data out on Tuesday showed consumer prices in the US were 5.4% higher in June than the same time last year. That’s the fastest rise in nearly 13 years, and higher than economists were predicting – even if you strip out volatile food and energy prices (tweet this). But it’s not all down to price hikes from the likes of Pepsi: the biggest drivers were used cars, as well as travel-related products and services like hotels and airfares.

The bigger picture: Pepsi’s well-positioned for the future.
Prices among producers have been hitting new highs in the last few months too, mostly due to a surge in the cost of raw materials. Couple that with wage inflation, and companies are facing lower profits than investors might’ve been expecting – unless they can pass those costs onto their customers. That’s easier to do in some sectors than in others: consumer staples like Pepsi, for instance, typically have strong “pricing power”. In other words, they’re able to sell products for a higher average price every year, meaning they can offset rising costs and deliver profits at least as high as investors are expecting.

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“We have all a better guide in ourselves, if we would attend to it, than any other person can be.”

– Jane Austen (an English novelist)
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😨 The inflation situation

Prices are going up and up, and that’s not just bad for your pocket: it’s a problem for your portfolio too. Lucky for you, Aletheia Capital’s Sharmila Whelan knows a thing or two about how to protect yourself, and you can find out everything you need to know at What Does Inflation Mean For Your Portfolio?

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