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Saturday July 23, 2016



JPMorgan's Earnings Exceed Forecasts

JPMorgan Chase & Co. (JPM) announced its quarterly earnings on Thursday, July 14. The nation's largest bank surpassed expectations and delivered better-than-expected revenue and earnings for the second quarter.

JPMorgan reported revenue of $25.21 billion in the second quarter. This was a 3% boost from last year's second quarter revenue of $24.53 billion.

"JPMorgan Chase continued to perform well in all of our major businesses," said JPMorgan CEO Jamie Dimon. "We saw strong underlying performance with record consumer deposits (up 10%), credit card sales volume (up 8%), merchant processing volume (up 13%) and broad core loan growth (up 16%)—particularly in mortgage and commercial real estate."

While net income in the second quarter fell to $6.20 billion from $6.29 billion a year ago, on an earnings per share basis profit rose to $1.55 a share compared to $1.54 a share in the same quarter last year. This was well above the $1.43 per share predicted by analysts.

Despite investors' concerns, JPMorgan has stayed resilient and optimistic in the wake of Britain's vote to leave the European Union. JPMorgan's CFO, Marianne Lake, noted on Thursday that the bank sees Britain's exit as "a political and economic challenge, but not a financial crisis." Following the vote, the bank reported record currency trading activity, which was helped in large part by its bond and fixed income divisions. JPMorgan's trading division is up 13% year-over-year, while its fixed income market grew by 35%.

JPMorgan Chase & Co. (JPM) shares ended the week at $64.18, up 3% for the week.

Delta Changes Course

Delta Air Lines, Inc. (DAL) announced its second quarter earnings on Thursday, July 14. The airline company reported an increase in earnings, helped by a 17% decline in jet-fuel prices, but announced plans to cut back its flight capacity to the U.K following Britain's vote to leave the European Union.

Delta announced revenue of $10.45 billion, down 2% from last year's second quarter revenue of $10.70 billion. This was below the $10.48 billion in revenue expected by analysts.

"The Delta people again delivered another quarter of solid profitability, superior operational performance and great customer service, continuing to strengthen our brand and our foundation for the future," said Ed Bastian, Delta's CEO. "As we look to the remainder of the year, the large year-on-year savings driven by lower fuel are largely behind us and it is important to achieving our long-term financial targets that we get unit revenues back to a positive trajectory."

Delta announced earnings of $1.55 billion, or $2.03 per share. Last year at this time, the airline reported earnings of $1.49 billion, or $1.83 per share.

Delta, the second ranked airline by traffic, announced on Thursday that it plans to reduce its flight capacity from the U.S. to U.K. by 6% due to the drop in the British pound and economic uncertainty in the wake of Britain's decision to leave the European Union. The airline company plans to increase its overall carrying capacity by 1% in the fourth quarter, which is half of its original projected increase. Delta, among other U.S. airline carriers, has experienced a decrease in passenger revenue, an overabundance of capacity and continued airfare pressure in recent months. On Thursday, Bastian stated, "While admittedly we have done a poor job forecasting when unit revenues will turn positive, we're working hard to achieve our goal hopefully by the end of the year."

Delta Air Lines, Inc. (DAL) shares ended the week at $39.98, up 6 % for the week.

YUM's Earnings Appeal to Investors' Appetites

Yum! Brands, Inc. (YUM), owner of KFC, Taco Bell and Pizza Hut brands, announced quarterly earnings on Wednesday, June 13. The company reported slightly lower revenue, but a jump in profit, causing stocks to rise more than 4% in after-hours trading.

Yum reported that revenue for the second quarter was $3.01 billion compared to $3.10 billion in the second quarter last year. The figure missed the $3.09 billion revenue mark predicted by analysts.

"This is a transformational year for our company as we remain on track to finalize the separation of our China business with a targeted completion date around October 31, 2016, ultimately creating two powerful, independent, focused growth companies," said Yum Brands CEO Greg Creed. "Given our strong first-half results and current trends in China, I'm pleased to raise our full-year core operating profit growth forecast to at least 14% from 12% previously."

The company reported net income of $339 million, surpassing last year's second quarter earnings of $235 million. Adjusted earnings per share for the second quarter were $0.75, up from $0.69 per share a year ago.

Yum operates nearly 43,000 restaurants around the globe. While second quarter sales in China surpassed expectations, sales in the U.S., specifically at Taco Bell, disappointed investors. Last year in the second quarter, sales for the Mexican fast-food giant rose 6%, compared to a 1% decline this year. Creed blamed "challenging industry conditions" for the slowdown, but analysts also point to competition from other companies like McDonalds, whose revamped menu and all-day breakfast offerings have attracted many fast-food consumers.

Yum! Brands, Inc. (YUM) shares ended the week at $87.49, up 2% for the week.

The Dow started the week of 7/11 at 18,161 and closed at 18,516 on 7/15. The S&P 500 started the week at 2,132 and closed at 2,162. The NASDAQ started the week at 4,976 and closed at 5,029.

Retail Sales Push Yields Higher

U.S. benchmark Treasury yields hit their highest peak in three weeks on Friday following the release of upbeat economic data. U.S. government data indicated an increase in consumer prices, retail sales and industrial production, causing some investors to regain hopeful speculation that the Fed may consider a rate increase before the year is over.

Friday's report revealed retails sales rose 0.6% in June and consumer prices increased 0.2% due to rising costs of medical care, gasoline and rent. Sales growth was helped in large part by sales at home and garden stores as well as online merchants.

While yields were hurt in the wake of the terrorist attack in Nice, France on Thursday, they rebounded quickly on Friday morning following the report's release. The benchmark 10-year yield rose 4.5 basis points to 1.575%, climbing to its highest level since June 24.

"Over the last week or so we've gotten stronger-than-expected data across the board," said Dan Mulholland, head of Treasury trading at Credit Agricole in New York. "It's weighing on the market now that the flight-to-quality trade fades."

Friday's data coupled with the better-than-expected June employment report has caused some investors to revive speculation that a rate hike from the Fed is still a possibility this year. Fed-fund futures, used to gauge the Fed's policy positions, indicated that the odds of a rate increase by December have increased to 37%.

"For the most part, economic fundamentals appear to be solid," said Patrick T. Harker, President of the Federal Reserve Bank of Philadelphia on Wednesday when he was asked about the Fed raising rates this year. "Personal income growth has been healthy, job growth continues—albeit with some volatility—at a healthy pace, and there has been a modest increase in equity prices and continued steady growth in home prices."

The 10-year Treasury note yield finished the week of 7/11 at 1.59%, while the 30-year Treasury note yield was 2.30%.

Mortgage Rates Remain Low

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, July 14. The report indicated that interest rates are holding steady as the 30-year fixed rate mortgage continues to hover near its record low of 3.31% set in November of 2012.

The 30-year fixed rate mortgage averaged 3.42% this week. This represents a slight increase from last week when it averaged 3.41%. Last year at this time, the 30-year fixed rate mortgage averaged 4.09%.

This week, the 15-year fixed rate mortgage averaged 2.72%. This was lower than last week when it averaged 2.74%. The 15-year fixed rate mortgage averaged 3.25% one year ago.

"We describe the last few weeks as A Tale of Two Rates," said Sean Becketti, Chief Economist at Freddie Mac. "Immediately following the Brexit vote, U.S. Treasury yields plummeted to all-time lows. This week, markets stabilized and the 10-year Treasury yield rebounded sharply. In contrast, the 30-year mortgage rate declined after the Brexit vote, but only by half as much as the 10-year Treasury yield. This week, the 30-year fixed rate barely budged, rising just one basis point to 3.42%. This pattern suggests that mortgage rates are likely to remain low throughout the summer."

Based on published national averages, the money market account finished the week of 7/11 at 0.54%. The 1-year CD finished at 1.11%.

Published July 15, 2016
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