Opening Bell 04.15.20 - Dealbreaker

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STRESS TEST

Both JP Morgan and Wells Fargo reported earnings yesterday, announcing misses on profit for the first quarter. Well, duh. But the key takeaway is that both banks expect massive amounts of defaults and see a major economic downturn in our future. And so it begins...

Shares of the banks fell 2.74% and 3.98%, respectively, after rising briefly earlier in the session.

No reservation

Both institutions saw profits fall off a cliff thanks to the coronavirus pandemic with JPM announcing a 70% decrease and Wells Fargo plummeting a whopping 89%. Profits of $2.87B and $653M, respectively, fell short analysts' consensus.

The most alarming figure in each of the banks' earnings reports, however, was the giant reserve provisions set aside for potential loan defaults. JPM put up $8.29B while Wells reserved $3.3B... compared to just $1.43B and $0.64B in Q4 of 2019. No word on if this accounts for defaults on WF’s fake loans.

What goes up, is really down

According to JPM’s Jamie Dimon, things could be worse than we thought. Fresh off of heart surgery, JD was dropping truth bombs during yesterday’s earnings call. He told the Street that unemployment could climb to as high as 20% and GDP could crater as much as 40%, compared to the 25% expected.

The bottom line...

Major indices rose on Tuesday despite the continuous deluge of hard to swallow economic data and dire warnings from two major US banks. So, what gives?

Well, it might have to do with some better than expected early earnings reports. You know the kind that fall into the "it's not as bad as it could have been" category.

And it appears that Wall Street just DGAF about much of the backwards looking (mostly negative) economic data (read: 6.6M jobless claims), because the info is already "built in." You see, investors have better things to focus on, like the Feds seemingly endless buffet of stimulus and cases of 'rona leveling off.

Simply put, market participants see the light at the end of the tunnel. Unfortunately, the same can't be said for the rest of the economy.

JP Morgan, Wells Fargo prepare for a recession [WSJ]

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