Finimize - 📈 US banks aren't messing around

Hi Reader, here's what you need to know for January 20th in 3:06 minutes.

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Today's big stories

Two major US banks reported better-than-expected earnings
One investment firm thinks there’s a much more important driver of stock prices than profit, and it’s flashing a warning right now – Read Now
UK consumer prices rose at their fastest pace in 30 years last month

Good Riddance

What’s Going On Here?

Bank of America (BoA) and Morgan Stanley announced on Wednesday that their earnings both came in better than expected last quarter, but this is where the two rivals part ways.

What Does This Mean?

BoA and Morgan Stanley will be thrilled the dealmaking boom hasn’t let up: their investment banking segments – which take a fee from every deal they work on – made 26% and 6% more in revenue last quarter than the same time in 2020. BoA topped that up with the $850 million it originally set aside in case pandemic-bruised customers couldn’t cover their loans, while Morgan Stanley celebrated a bumper 59% uptick in revenue in its investment management business. Not even slowing trading revenue could bring them down: BoA and Morgan Stanley’s profits climbed by a better-than-expected 28% and 9% respectively.

Why Should I Care?

For markets: Don’t bank on dealmaking.
It’s easy to lump US banks together, but they aren’t all cut from the same cloth: Morgan Stanley, for example, doesn’t have a retail banking business like BoA does. That could make all the difference as interest rates start to rise, since it’ll allow BoA to charge more on the loans it offers. That’s a much more stable business model, especially as there’s no guarantee companies will keep striking deals when it becomes more expensive to borrow money. And don’t investors know it: BoA’s stock has outperformed Morgan Stanley’s stock by 9% this year.

Zooming out: Fintechs are taking over.
Still, even BoA will want to watch its back: digital banking app Revolut – the UK’s second-most valuable fintech company – announced on Wednesday that it’s launching a commission-free stock trading platform in the US, as part of its goal to become a “super app” capable of managing every aspect of its users’ finances. It’s a good time to make the move: data shows that American retail traders spent over seven times more on stocks last year than in 2019.

You might also like: How to profit from BoA’s surging loans business.

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Analyst Take

Move Over, P/E Ratio…

Andrew, Analyst

What’s Going On Here?

Consult any economics primer, and it’ll tell you that stock market investors are buying a claim on that company’s future earnings.

That’s precisely why investors rely on the price-to-earnings ratio, a metric that multiplies underlying profits by some valuation they’re willing to pay to access them.

But one investment firm suggests there might be an even more fundamental driver of prices than how much profit a company is able to rake in – and the data does support its case.

And unfortunately for your investments, this catalyst is currently on the wane.

So that’s today’s Insight: what exactly this investment firm tracks, and how this driver might change the way you think about your riskier bets.

Read or listen to the Insight here

5G. It’s the future.

That’s probably why The Motley Fool has marked it down as one of the most exciting investment opportunities out there right now.

5G, after all, is moving into the mainstream thanks to Apple’s first-ever 5G iPhones. Analysts have high hopes for where it’ll go from here.

But The Motley Fool doesn’t think Apple is the only way – nor the most lucrative one – to play the trend.

In fact, they know one listed US company that makes a component so essential to the 5G iPhone that Apple’s expected to include it in every new iPhone they make.

You can find out what that company is for free: just head over to The Motley Fool.

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