Coinbase’s long-awaited initial public offering drew attention on Wednesday, with eclipsing results from banks, which started the profit season strongly.
Our call of the day comes from research firm BCA Research, which urges investors to favor an overweight allocation to the bank shares of their portfolios, as a number of factors support financial strength.
The profits of the banking giants in the first quarter were driven by large reductions in loss reserves, which were more than double the levels of the pre-COVID-19 pandemic at the end of 2020. As the economic recovery of the pandemic continues, banks will continue to release reserves the need to accommodate for large potential loan losses relaxes, said BCA.
But to move forward, banks will need to focus on their ability to expand their loan portfolio. The basic benefits of banks come from the indebtedness of savers at low short-term interest rates and from loans at higher long-term rates. The dynamics of fiscal stimulus in the United States has led to an increase in deposits and a reduction in lending, but this is expected to change once the economy reopens, BCA said.
Source: BCA Research.
Vaccine deployment is on the rise and a certain level of immunity of the COVID-19 herd in September would ease restrictions, boost consumer confidence and accelerate the recovery of the labor market, BCA said. All of this will favor spending and another round of leverage, mostly because 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 showed that US consumer debt rose by $ 27.6 billion (7.9% annually), the highest since November 2017.
More spending and a reduction in savings should increase U.S. Treasury yields, according to BCA, with strong growth that will favor long-term yields, while short-term bonds face more resistance from the accommodative political position of the Fed. This will further increase the profitability curve, BCA said, and this is another boost for the banking outlook.
The buzz
ARK Invest acquired $ 246 million worth of Coinbase shares after the cryptocurrency exchange went public on Wednesday, at a “time of cultivation” for cryptography. The fund’s headquarters led by Cathie Wood sold $ 178 million worth of Tesla shares to make way for Coinbase COIN,
in three funds, including the ARK Innovation ARFK flagship,
It’s a box office day on the U.S. economic front with a wave of data that far exceeds expectations. Initial unemployment claims for the week of April 10 amounted to 576,000, well below the 710,000 forecast, while there were 3.73 million continued unemployment claims during the week of April 3. while the Empire State’s manufacturing index stood at 26.3, surpassing the consensus forecast of 20. March industrial production grew 1.4%, below the estimated 2.7% . The index of the National Association of Home Builders for April was reported at 83, slightly below the 84 expected.
TSM of Taiwan Semiconductor Manufacturing Co.,
profits increased 19% in the first quarter of 2021 compared to the same period last year. Digital trends driven by the COVID-19 pandemic have led to a rapid increase in chip demand over the past year and have led to a global shortage of semiconductors.
The Irish Data Protection Commission launched an investigation into Facebook FB,
Wednesday in response to reports that made public a dataset that contained personal information related to nearly 533 million users. The regulator will investigate whether the social media giant breached European Union data protection rules.
TuSimple, a group of autonomous trucks based in California, went public on the Nasdaq. Linked to vehicle manufacturer Volkswagen VOW,
and with the support of UPS logistics company UPS,
TuSimple will compete with the autonomous driving projects of the electric vehicle manufacturer Tesla TSLA,
and Waymo, a division of Alphabet GOOGL,
A study from the University of Oxford found that blood clots are so prevalent with COVID-19 vaccines from the pharmaceutical company Pfizer PFE,
and Modern MRNA Biotechnology,
as they are from the pharmaceutical company AstraZeneca AZN,
a vaccine produced with the help of the university. The AstraZeneca vaccine has been scrutinized and its use was stopped in Denmark due to blood clots.
The markets
Shares of US DJIA,
SPX,
COMP,
they were superior with the current profit season and controlled bond yields. European stocks flirted with new UKX records,
DAX,
PX1,
with the pan-European Stoxx 600 SXXP,
closing above the all-time high reached last week. Asian shares NIK,
HSI,
SHCOMP,
they were more mixed.
The graph
Source: Morgan Stanley.
No, American corporations are not just bloody money, as you might think from seeing the chart of the day, which brought us to the notice of the irrelevant Investors blog. The chart, which is part of Morgan Stanley’s recent research, reflects the rise in “intangible investments,” which are not included in a company’s balance sheet, but in its profit and loss account. These “expenses,” which include assets such as research and development, make companies seem unprofitable. It’s an accounting thing.
Random readings
A Canadian MP apologized after accidentally appearing naked at a virtual House of Commons meeting.
A missing hiker was found in California after a geography enthusiast used a mysterious photo to reveal its location.
Need To Know starts early and updates up to the opening bell, though sign up here to get it delivered once in your email. The email version will be sent around 7:30 am East.
Want more for the next day? Sign up for The Barron’s Daily, a morning investor briefing, which includes exclusive comments from Barron and MarketWatch writers.