Summary: September marks the resumption of student loan interest and payments, potentially impacting consumer discretionary stocks and benefiting student loan companies, while biotech investors await news on weight loss drugs that could combat obesity.
US banks are experiencing significant deposit outflows, with total bank deposits plunging by over $70 billion in a week, the lowest levels since May, leading to concerns about the ongoing regional banking crisis; meanwhile, US commercial banks have also suffered significant losses in deposits, with 60% of deposits moving to higher-yielding money market funds, and the balance of unrealized losses on securities at commercial banks rising to $558 billion in Q2; to address these issues, the Federal Reserve has reached an all-time high of $107.8 billion in its banking loan facility to provide funding to distressed banks.
U.S. stocks slumped after the Federal Reserve indicated that it may not cut interest rates next year as much as initially expected, causing concerns among investors on Wall Street.
Investors are concerned about the possibility of a US interest rate hike and a government shutdown, which could impact the US credit rating and push the world's top economy into recession.
If U.S. lawmakers don't reach a decision on government spending by Sept. 30, bills focused on crypto regulation, market structure, and stablecoins could be put on hold, potentially impacting the progress of crypto legislation in Congress.
A bipartisan bill that would grant the marijuana industry access to banking services is expected to advance in the Senate, providing legal protection to financial institutions dealing with state-legal cannabis businesses.
J.P. Morgan strategists predict that the Federal Reserve will maintain higher interest rates until the third quarter of next year due to a strong economy and continued inflation, with implications for inflation, earnings, and equity valuations as well as potential impact from a government shutdown.
The Senate Banking Committee has approved the Secure and Fair Enforcement Regulation (SAFER) Banking Act, allowing legal cannabis businesses to access banks and financial institutions, with the bill now moving to a full Senate floor vote.
The recent passing of the SAFE Banking Act by the U.S. Senate Banking Committee at the Benzinga Cannabis Capital Conference in Chicago marks a significant step forward for the cannabis industry's ability to use banking and financial systems, with former representative Ed Perlmutter highlighting the bipartisan effort behind the legislation, the role of grassroots engagement, and a surprising twist involving cryptocurrency during the bill's deliberations.
JPMorgan Chase CEO Jamie Dimon warns that the Federal Reserve could raise interest rates by another 1.5 percentage points, potentially reaching 7%, which would be the highest since 1990, and urges Americans to be prepared for the possibility.
Rising interest rates are actually hurting bank stocks instead of helping them, disappointing bank investors who had been hoping for the opposite outcome.
Investors are likely to continue facing difficulties in the stock market as three headwinds, including high valuations and restrictive interest rates, persist, according to JPMorgan. The bank's cautious outlook is based on the surge in bond yields and the overhang of geopolitical risks, which resemble the conditions before the 2008 financial crisis. Additionally, the recent reading of sentiment indicators suggests that investors have entered a state of panic due to high interest rates.
Despite efforts by Federal Reserve Chair Jerome Powell to curb borrowing and spending habits, many American companies, both investment-grade and sub-investment grade, have continued to borrow more money, potentially indicating that interest rates may need to be raised even higher to effectively break the cycle. Increased borrowing has raised concerns about the financial health and stability of businesses, with indicators of companies' ability to make payments deteriorating. The borrowing spree is primarily a North American phenomenon, as European and Asian companies have added far less debt or decreased their borrowing.
US bank stocks are currently the market's Achilles' heel, as they need to participate in any recovery rally in order to validate the notion that higher interest rates won't lead to a recession next year.
JPMorgan Chief Market Strategist predicts a recession and discusses the Federal Reserve's stance on interest rates and the performance of mega-cap versus mid-sized stocks.
The stock market is currently experiencing the most significant U.S. Treasury bond bear market in history, while JPMorgan's Chief Market Strategist predicts potential turbulence and a recession on the horizon; meanwhile, stocks opened lower on Friday morning after the September non-farm payrolls data, and U.S. futures are shaky as traders await the release of the Non-Farm Payrolls report, with experts predicting lower job additions and a potential fall in the unemployment rate.
Higher-for-longer interest rates are expected to hinder U.S. economic growth by 0.5%, potentially leading unprofitable public companies to cut their workforce, according to strategists at Goldman Sachs, who also noted that the Federal Reserve's current benchmark rate is insufficient to cause a recession. Additionally, the firm warned that the high rates could increase the U.S. debt-to-GDP ratio to 123% over the next decade without a fiscal agreement in Washington.
US banks face the challenge of an extended period of high interest rates, which will pressure their profitability by increasing deposit costs, deepening bond losses, and making it harder for borrowers to repay loans.
JPMorgan Chase CEO Jamie Dimon warns that the ongoing conflicts in Ukraine and Israel could have significant impacts on energy and food markets, global trade, and geopolitical relationships, potentially making it the most dangerous time the world has seen in decades. However, the bank managed robust loan growth and increased revenue in the third quarter, benefiting from rising interest rates and acquisitions. Other major U.S. banks, including Wells Fargo and Citi, also reported strong results driven by rising interest rates.
Higher interest rates have boosted the earnings of big banks like JPMorgan Chase, Citigroup, and Wells Fargo, but an increase in loan write-offs and signs of consumer spending cutbacks indicate that customers are struggling.
