Morning Note: Sliding Into Second

Last Wednesday I wrote the following about the prospects for bank earnings:

"Earnings season kicks off next week. There seems to be a bit of optimism (interestingly) around bank earnings. At first blush, given conditions, and interest rates, that's counter-intuitive. If indeed banks surprise to the upside, it'll virtually have to be about trading revenue and, as I've recently learned, the billions in fees they grabbed by underwriting those small business stimulus loans. Although a few, if not all, of the bigs say they're donating those to charity..."

The Dow's screaming higher again this morning, with Goldman Sachs making a sizable contribution.

Here's Bloomberg on Goldman's earnings report released this morning:

"Goldman Traders’ Best Result in Years Spurs Profit Surprise

• Trading revenue almost doubles, surging past analyst estimates
•  Underwriting fees jump to a record as debt markets open up

Goldman Sachs Group Inc. made the most of a historic market rebound in the second quarter as the Federal Reserve’s stimulus efforts handed a bonanza to Wall Street trading desks.

Revenue from trading stocks and bonds surged 93%, surpassing what analysts had expected by about $2.5 billion and mirroring similar gains reported Tuesday by JPMorgan Chase & Co. and Citigroup Inc. The bank also raked in record fees from helping companies raise cash needed to weather the coronavirus pandemic.

The firm’s fixed-income trading revenue more than doubled to $4.24 billion, the highest in nine years, while the equity unit had its best showing in 11 years. The gains propelled revenue to the second-highest mark ever and net income to a slight surprise increase from a year earlier."

Recall, from yesterday's weekly message, what JP Morgan CEO Jamie Dimon had to say about our current state of economic affairs. I suspect this -- given how the banks' rosy Q2 results were generated (read Fed stimulus) -- will ultimately apply to banks' bottom lines as well:

“You will see the effect of this recession. You’re just not going to see it right away because of all the stimulus.”

Early on, when the market suffered its classic "liquidity event" that occurs at the end of virtually every long expansion/bull market, my pat response to clients who were thrilled that we hedged ahead of time, was (words to the effect) "believe me, it's way too soon to begin celebrating. We're simply rounding first base in what is bound to be very long, very volatile ball game."

My best guess is that we're presently sliding into second (latter stages of the "hope phase").

If I can I'll offer up a quick market wrap this evening, then, as I mentioned yesterday, I'll be quiet till early next week.

Have a great day!
Marty