Finimize - 💀 Traditional portfolios are done for

Hi Reader, here's what you need to know for October 15th in 3:08 minutes.

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Today's big stories

US banking giants Bank of America, Citigroup, Morgan Stanley, and Wells Fargo all reported better-than-expected earnings
You need a new kind of portfolio if you’re going to thrive in the next decade’s investing environment – Read Now
TSMC reported expectation-beating quarterly earnings, as it races to keep up with high demand for chips

Mass Production

What’s Going On Here?

A veritable assembly line of US banking giants all posted similarly better-than-expected quarterly updates on Thursday.

What Does This Mean?

Let’s start with Bank of America (BoA), Citigroup, and Morgan Stanley, all of which have been making the most of the recent influx of mergers and acquisitions: revenues from their investment banking segments – which take a cut of every deal they advise on – were up 23%, 40%, and 67% respectively versus the quarter before. That helped send their profits up by a better-than-expected 58%, 48%, and 25% versus the same time last year.

Wells Fargo, meanwhile, had its personal banking business to thank for its strong showing: the division’s profit almost tripled compared to the same time last year, with shoppers getting back to using cards and racking up fees. That led the company’s profit to jump 60% from a year ago.

Why Should I Care?

The bigger picture: A free billion? Yes please.
Just like with JPMorgan Chase earlier in the week, BoA, Citigroup, and Wells Fargo had tucked away money in case pandemic-stricken borrowers weren’t able to pay off their debts. And just like JPMorgan, they’re at a point where they feel relaxed enough to put that cash back into the business. Not a bad way to end a quarter: BoA and Citigroup added $1.1 billion to their bottom lines, and Wells Fargo $1.7 billion.

Zooming out: Interest or death.
Ultra-low interest rates have been the thorn in banks’ sides this year, hobbling the amount banks can make from their loans businesses. So they might be pleased to see data out earlier this week showing that US consumer prices rose by a higher-than-expected 5.4% last month versus the year before. That’ll put pressure on the US Federal Reserve to raise interest rates sooner rather than later to keep inflation in check, which should give banks’ profits a nice little boost (tweet this).

You might also like: How you can profit from banks’ stellar earnings.

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Analyst Take

These Strange Times Call For A New Kind Of Portfolio

Andrew, Analyst

What’s Going On Here?

The last two decades have proved a pretty benign investing environment.

Stocks and bonds, after all, have headed in different directions, making the traditional portfolio of 60% stocks and 40% bonds a safe and profitable bet.

But stocks and bonds started moving in the same direction as of last month, which means what’s bad for the goose is bad for the gander.

And if the experts are to be believed, things could stay that way for 10 years or more.

That means it’s in your interests to update your portfolio, making sure you’re not quite so exposed to the whims of the stock and bond markets.

So that’s today’s Insight: how we’ve found ourselves in this situation at all, and how to build your own new kind of portfolio.

Read or listen to the Insight here

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