Josh Rings the Bell, Fifteen Year Changes, Bank Earnings, Internals Are Fine

JPMorgan Chase & Co.

Across the shows: 1 speaker in other episodes, 1 bullish and 0 bearish calls, past 30 days

• Michael Batnick · Ritholtz Wealth ManagementBullish

  JPMorgan's asset management business, with about $5T in assets, is a juggernaut that has grown into a behemoth.

  The standout number in JPMorgan's results was about $5 trillion in asset management assets. Michael recalls the bank launching its ETF business around 2017-2018 with short-term bond funds, which seemed odd then. Nearly a decade later, he says the unit has become a juggernaut and an absolute behemoth, and he gives the bank credit for it.

  “And here we are nearly a decade later, and it's a juggernaut. It's an absolute behemoth of a business, so credit to them.”at 26:57

• Josh Brown · Ritholtz Wealth ManagementBullish

  JPMorgan's raised net interest income guidance shows higher rates are a net tailwind for banks.

  JPMorgan's net interest income guidance came in above previous expectations, and the full-year NII expectation was raised. Banks are making more money from higher short and long rates than analysts assumed as recently as January. Higher rates cut both ways: they can strain some borrowers and project funding, but they widen the lending tailwind for banks. Josh concludes that bank earnings were good to very good.

  “So if you're a bank investor, higher rates cut both ways. They might create a problem with some debt or some funding of projects, but they also create a tailwind on these banks lending businesses.”at 31:50

Citigroup

• Josh Brown · Ritholtz Wealth ManagementBearish

  Citi's post-earnings drop and broken technicals make it a stock he won't dip-buy.

  Citi fell about 5.6% on the day, from over $140 in late June to about $124. Investment banking fees fell 13% sequentially, the biggest decline among the banks. Credit costs and the reserve build rose, card profit was hurt by rewards and provisions, and fee income was down 4%. The revenue beat was barely a beat against high expectations, and the stock had been up about 38% year to date. Technically, it failed at the 50-day, broke below the 200-day, and RSI fell to 36. Josh reads this as a clear technical violation and says he is not a dip buyer.

  “I'm not a dip buyer here.”at 25:58

The Goldman Sachs Group

• Josh Brown · Ritholtz Wealth ManagementBullish

  Goldman's quarter was a blowout across equities, financing, and advisory, with strong results all round.

  Goldman reported EPS of $17 against about $13.65 expected. Revenue of about $18.68 billion was its second-highest quarterly figure ever. Equities revenue rose 72%, equity financing hit a record up 96%, and advisory fees of $1.7 billion were another record. Josh says Goldman is crushing it across the board. Michael counters that the stock reaction, a gap up of about 4% that closed on the lows, was disappointing.

  “They just seem to be crushing it all across the board.”at 28:37

Bumble

• Josh Brown · Ritholtz Wealth ManagementBearish

  Bumble was a better idea than a business; its IPO was a disaster and it is now being sold cheaply.

  Brown says Bumble's concept of women initiating contact was smart, but it was a better idea than a business, and many things went wrong. The stock opened at a 77% premium, ran to over $80, and then fell to about $2, a roughly 90% washout. Market cap fell from about $8.5 billion to about $300 million, and the company is now being acquired for roughly $1 billion at about $6 a share. Match Group's Tinder and Hinge are also struggling, which he sees as evidence of weak economics in dating apps.

  “Unfortunately, it was a better idea than it was a business.”at 56:04

Amazon.com

Across the shows: 3 speakers in other episodes, 1 bullish and 3 bearish calls, past 30 days

• Josh Brown · Ritholtz Wealth ManagementUncertain

  Amazon's AWS is strong, but its low-margin retail business is unlikely to ever improve.

  Brown says the AWS data center business is gangbusters. It beat expectations last quarter, and Batnick notes AWS reaccelerated for the first time in over a year. He argues that Amazon's staple and fulfillment businesses, such as batteries, same-day shampoo delivery, Prime and grocery, are a fight for a knife in the mud, and it is not clear this will ever change. If AWS were spun off it could be a red-hot stock, but he questions who would want to own the rest of Amazon. He says he owns the stock.

  “Amazon staple businesses selling batteries and delivering shampoos same day, that business is a fight for a knife in the mud. And it's not clear that that will ever change.”at 1:01:05

US stock market outlook

• Josh Brown · Ritholtz Wealth Management

  Energy stocks' rally could run much further and longer than people expect, given energy's shrunken weight.

  Energy fell from a top-three S&P sector in 2011, at about 12% of the index, to about 2%, roughly the size of real estate and utilities. Tech, by contrast, rose from about 19-20% to 37%, above its dot-com peak. Because energy is so small and so far down, Josh argues that its current run could go much further and last longer than people think possible.

  “when you see energy stocks running up, which many of them are now doing, I want you to remember this could go way further and way longer than you might actually think is possible.”at 15:52

• Michael Batnick · Ritholtz Wealth Management

  Breadth deterioration is a familiar setup, and the market has already done the corrective work.

  Michael has discussed this pattern for about a decade. Each time breadth deteriorates, the market has already done much of the corrective work. He is not surprised by the current weakness beneath the index, given the equal-weight index is only about 4.5% off its high. He says he is firmly in Denise Chisholm's camp, which argues that narrow participation is not a warning.

  “every time you get the [breadth] deterioration... the market has already done a lot of the work for you. So I am not surprised. And I think... I'm firmly in her camp.”at 36:38

• Josh Brown · Ritholtz Wealth Management

  Weak market breadth has historically led to better forward returns, so deteriorating internals are an opportunity.

  Josh quotes Santoli on stocks falling out of uptrends while the index sits near record highs, with the equal-weight index only about 4.5% off its high. Goldman's breadth measure has reached its weakest level since the dot-com bubble. Denise Chisholm's work smooths a three-month reading of stocks above their 50-day averages, and it shows the market has already washed out, with the index holding up. Josh cites data from 1926 to today: low participation has typically been followed by stronger forward returns, and weak participation has been more often an opportunity than a warning sign. He acknowledges nothing works all the time.

  “Low participation has typically been followed by better, not worse, forward returns.”at 36:51

• Michael Batnick · Ritholtz Wealth Management

  Low-participation rallies historically deliver significantly better returns; the current narrow rally looks constructive.

  Batnick says returns are significantly better after low-participation rallies. Gains are concentrated in the top five stocks, which sit at all-time highs, while the other 495 or so stocks are deteriorating. Josh Brown adds that narrow participation has historically come after a 5%+ correction about 97% of the time, but this time there was no dip. A Fidelity chart shows the probability of a positive twelve-month return from this drawdown regime is about 82%, going back to 1926, which Brown reads as the opposite of consensus.

  “Returns are better when you have this low participation rally, this low participation dynamic? See, like, significantly better.”at 37:42

• Josh Brown · Ritholtz Wealth Management

  Base case is an October shakeout, likely driven by earnings sell-offs and an energy-price backdrop.

  Brown says the S&P 500 going 53 sessions without a 1% decline cannot last. His base case for October is a shakeout. Bank earnings and the muted reaction to them are part of what he expects investors to live through, and earnings-driven sell-offs will likely be the excuse. He points to oil prices and the military conflict as an unresolved backdrop, and expects an 'October surprise.'

  “I don't think that's going to continue for much longer... I said my base case for October is we're going to get a shakeout.”at 41:41

• Michael Batnick · Ritholtz Wealth Management

  Midterm-year seasonality and a washed-out market mean now is not the time to get bearish.

  Batnick cites Q4 strength in midterm years. Bespoke data over 25 years shows the S&P 500's three months after October 6 beat every other three-month period. Terra Nova data shows the November-to-June stretch after midterm elections has been positive 100% of the time, across about 20 instances. He admits he does not know the cause and the sample is small, but says the setup after a broad washout argues against turning bearish.

  “It's not n equals one, and it doesn't mean forever and ever. But given the setup of everything washed out of the midterm seasonality, I don't think now is the time to get bearish.”at 50:39

Commodities (broad)

• Josh Brown · Ritholtz Wealth Management

  Real-asset investors over fifteen years earned little: gold up 154%, crude up 8%, natural gas down 6%.

  Since Halftime Report launched in October 2011, gold is up about 154%, while crude oil is up only 8% and Henry Hub natural gas is down 6%. Josh contrasts this with the stock market, which grew about sixfold, and with large-cap tech, which was up about tenfold. He says there is nothing in real assets over this period, and that anyone who invested in them had to be a great trader.

  “If you were one of these real assets investors, I hope you were a great trader because there's nothing there. Nothing.”at 12:26

Wealth, inequality & billionaires

• Josh Brown · Ritholtz Wealth Management

  US stock ownership is too narrow; the top 1% hold half of stocks, so broader participation is needed.

  US stock ownership has moved in a range, from 57% in 2011 to a low of 52% in 2013-2016, a rebound to 58% by 2022, and a local high of about 62%. It is nowhere near 70%. The top 1% of households own half of all stock, and the bottom 50% own about 1%. Josh argues that broader participation in the market is the way to ease class conflict and give everyone some elevation in status. He links this to the Trump accounts meant to address the gap.

  “We need more participation in this economic miracle that has set America apart from the rest of the world.”at 21:44

Venture capital & startups

• Michael Batnick · Ritholtz Wealth Management

  Private company marks won't improve in the next six months, as IPOs were pulled on valuations below expectations.

  In September, some IPOs were pulled because valuations came in 10 to 15% below expectations. Josh notes the market is still open, but the valuation reset is real. Michael says not every venture capitalist is getting a luxury gift this year, and that marks will not be better in three or six months. He would take the under on any rise in them.

  “The marks will not be better in three months, six months from now. I would definitely take the under on that.”at 30:44

Oil & fuels

• Josh Brown · Ritholtz Wealth Management

  Oil and energy prices show no sign of easing soon, given ongoing military action in the region.

  Brown notes that the capital of Yemen is on fire and that oil prices do not appear to be backing off anytime soon. He says there is no end in sight to what is happening with energy prices. He states he has no opinion on the military action itself, so the view rests on the price backdrop, not the conflict's outcome.

  “it doesn't seem like there's an end in sight to what's happening with energy prices.”at 42:24

US consumer

• Josh Brown · Ritholtz Wealth Management

  Consumer weakness is broad across spending categories, with energy prices and tariffs taking a bigger bite.

  Brown reviews the list of consumer stocks that are down 30-70%. The list spans food delivery (Domino's), snacks (Hershey), restaurants (McDonald's, Wingstop), fitness, apparel, home-related retail, gaming and betting. He says this is every segment of consumer spending, not one niche. Michael Batnick cited energy prices as a headwind, and Brown agrees that tariffs are taking an increasing bite out of people's spending. He notes Domino's flat same-store sales could reflect app competition rather than the consumer.

  “So this is what jumps out to me. It's every segment of consumer spending.”at 44:45

IPOs, M&A & deal activity

• Josh Brown · Ritholtz Wealth Management

  Avoid glamour IPOs even when you love the concept; they usually become cheaper later.

  Brown argues that glamour IPOs, built on charismatic founders selling a cause or a social fix, are priced on the story, not the economics. The 2021 IPO class, such as Bumble, often opened at big premiums and then collapsed by about 90%. Its exit came at a tiny fraction of the IPO valuation. He says investors usually get the chance to buy these names much lower, and by then they often no longer want them.

  “That's your case. Avoid the glamorous IPOs even when you love the concept. Give it a minute.”at 58:31