Buy bank shares after Citi, Goldman Sachs, BoA and JPMorgan earnings were insane, says this research group

Coinbase’s highly anticipated IPO was in the spotlight on Wednesday, eclipsing banks’ burst results, kicking off the earnings season with a bang.

Our call of the day belongs to research firm BCA Research, which urges investors to prefer an overweight allocation to bank stocks in their portfolios, as a number of factors support the continued strength of financial services.

The banking giants’ first-quarter earnings were boosted by large withdrawals of loss reserves, which were more than double pre-COVID-19 pandemic at the end of 2020. the need to absorb large potential credit losses is diminishing, BCA said.

But going forward, banks will have to focus on their ability to expand loan portfolios. Banks’ core profits come from lending to savers in the short term at low interest rates and lending at higher interest rates in the long term. The dynamics of fiscal stimulus in the US have caused deposits to rise sharply and loans to decline, but this is expected to change once the economy reopens, BCA said.

Source: BCA Research.

Vaccine rollout is gaining momentum and some degree of COVID-19 immunity to herds by September would allow for the restrictions, boosting consumer confidence and accelerating labor market recovery, BCA said. All of this will encourage spending and new leverage, especially as household balance sheets are largely healthy, according to the group.

In fact, this is already happening: The Federal Reserve’s consumer credit survey in February found that US consumer loans were up $ 27.6 billion – 7.9% per year – the highest number since November 2017.

According to BCA, more spending and a slump in savings should drive up yields on US Treasuries, with strong growth supporting long-term interest rates, while short-term bonds are facing more resistance from the Fed’s accommodative stance. This will steal the yield curve further, BCA said, and that’s another boost to banks’ outlook.

The buzz

ARK Invest acquired $ 246 million in Coinbase shares after the cryptocurrency exchange went public on Wednesday, in a “turning point” for crypto. The fund’s powerhouse, run by Cathie Wood, has sold Tesla shares worth $ 178 million to make room for Coinbase COIN,
-1.32%
in three funds, including the flagship ARK Innovation ETF ARKK,
+ 1.27%

It’s a blockbuster day on the US economic front with a spate of data far exceeding expectations. Initial jobless claims for the week of April 10 came in at 576,000, well below the expected 710,000, while there were 3.73 million persistent jobless claims in the week of April 3. while the Empire State’s manufacturing index was reported at 26.3, surpassing the consensus forecast of 20. Industrial production for March grew 1.4%, less than the estimated 2.7%. The National Association of Home Builders index for April was reported at 83, slightly below the expected 84.

TSM from Taiwan Semiconductor Manufacturing Co.,
-2.36%
earnings in the first quarter of 2021 are up 19% compared to the same period a year ago. Digital trends, spurred by the COVID-19 pandemic, have led to a rapid increase in chip demand over the past year and a global shortage of semiconductors.

The Irish Data Protection Commission launched an investigation into Facebook FB,
+ 1.64%
Wednesday in response to reports that a dataset containing personal information of approximately 533 million users has been made public. The regulator will investigate whether the social media giant has violated the data protection rules of the European Union.

TuSimple, a California-based autonomous truck group, took to the Nasdaq. Tied to car manufacturer Volkswagen VOW,
+ 1.64%
and supported by logistics company UPS UPS,
+ 2.04%
TuSimple will rival self-driving projects from electric car maker Tesla TSLA,
+ 0.57%
and Waymo, a division of Alphabet GOOGL,
+ 2.15%

A study from the University of Oxford found that blood clots are equally common with COVID-19 vaccines from the pharmaceutical company Pfizer PFE,
+ 1.36%
and biotech Moderna MRNA,
-0.64%
as they are from pharmaceutical company AstraZeneca AZN,
+ 1.77%
a vaccine produced with the help of the university. The AstraZeneca vaccine has come under scrutiny and its use was discontinued in Denmark due to concerns about blood clots.

The markets

US stocks DJIA,
+ 0.93%

SPX,
+ 1.11%

COMP,
+ 1.27%
were higher with the current earnings season and bond yields under control. European stocks flirted with new UKX records,
+ 0.63%

DAX,
+ 0.30%

PX1,
+ 0.41%
with the pan-European Stoxx 600 SXXP,
+ 0.45%
closing above the all-time high reached last week. Asian NIK stocks,
+ 0.07%

HSI,
-0.37%

SHCOMP,
-0.52%
were more mixed.

The graph

Source: Morgan Stanley.

No, US companies aren’t just bleeding money – as you might think when you look at the chart of the day, brought to our attention by the Irrelevant Investor blog. The chart, which is part of Morgan Stanley’s recent research, reflects the emergence of “intangible investments,” which are not on a company’s balance sheet, but rather on the income statement. These “expenditures”, including assets such as research and development, make businesses appear unprofitable. It’s an accounting thing.

Random reads

A Canadian MP apologized after accidentally appearing naked in a virtual meeting of the House of Commons.

A missing hiker in California was found after a geography enthusiast used a mysterious photo to reveal his location.

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