We had a strong opening today, mainly because beat and raised its guidance due to the AI boom. Taiwan Semiconductor is the bellwether for semiconductor manufacturing, so this is very good news. I’m not recommending Taiwan Semiconductor at this time, but I might in the future since it’s looking stronger.
Speaking of earnings, the third quarter announcement season is off to a great start with major financial institutions reporting better-than-expected results. Although flagship financial stock reported a 12% increase in third-quarter earnings, it also posted credit losses of $3.4 billion during the quarter, which is the highest in over five years. The Tricolor (subprime auto loans) bankruptcy liquidation caused J.P. Morgan to write down $170 million in the third quarter. During an analyst call, CEO Jamie Dimon said regarding Tricolor that “When you see one cockroach, there are probably more,” so it is no surprise that J.P. Morgan allocated another $810 million in reserves for bad loans.
Jamie Dimon also said the U.S. economy remained resilient despite some “signs of softening, particularly in job growth.” Dimon also said that the economic impact of tariffs “has been less than people expected, including us,” and added that the final outcome of tariff negotiations has yet to be seen. Investment banking boosted the bottom line for both and J.P. Morgan.
Fed Governor Christopher Waller was on Bloomberg on Thursday and made a convincing case for the Fed cutting key at its October due to ongoing labor market concerns. Since Fed Chairman Jerome Powell is effectively a lame duck, Waller has emerged as a new leader on the FOMC and is one of five candidates that the Trump Administration has named as a candidate to become the next Fed Chairman.
Christopher Waller’s foresight into the labor market weakness before the Labor Department downward revisions makes him stand out as an economic expert. I should also add that Waller was not worried about inflation emerging amidst weak global economic growth and low crude oil prices.
September were supposed to be announced on Thursday, but due to the federal government shutdown, this report was postponed. As a result, same-store sales have emerged as a more important indicator to gauge retail sales. The expectations for the holiday shopping season remain low due to the federal government shutdown and a weak labor market. However, the holidays are typically a happy time of year, so consumer spending may end up being better than many economists anticipate.
Speaking of economic weakness, Eurostat announced on Thursday that the European Union’s (EU) exports to the U.S. declined 26% in August to $38.3 billion. In the past 12 months, EU exports to the U.S. have declined 22%. On Wednesday, Eurostat announced that industrial production in the eurozone declined 1.2% in August, led by a massive 5.2% drop in industrial production in Germany. Industrial output also declined in France and Italy. The bottom line is that due to economic weakness in China as well as new tariffs in the U.S., the entire eurozone is expected to slip into a recession. Germany is already in its third year of a recession, due to soaring energy prices that caused many manufacturers to outsource to the Czech Republic, Hungary, Poland, and Slovakia.