CE 100 Index Gains 1.3% as Big Banks Post Earnings

Earnings season is in full swing, as big banks – specifically, JPMorgan and Citigroup – helped sway the fortunes of the CE 100 Index.

The Index was up 1.3% for the week, as the bank earnings detailed relative strength in consumer spending, though company management at Citi and at JPMorgan took note of pressures facing lower income and lower-credit-scoring consumers.

The Banking segment gained 3.9%, helping lead the connected economy index’s performance higher.

JPMorgan shares were up 4.3%. In the company’s earnings report released Friday, the data showed that consumers continued to use their cards in full force, for both debit and credit payments.

And though there are pockets of weakness in spending from lower income cohorts, according to management, spending trends are still strong — and there remain opportunities to grow presence in the card market.

The second-quarter results and supplementals from the company indicated that credit card loans were up 13% year on year to $216 billion, up 5% from the first quarter.

Debit and credit card sales volumes were up 7%, to $453 billion in the most recent period.

Credit Normalization

The net charge-off rate on card loans, per company data, stood at 3.5% in the second quarter, up from 3.3% in the first quarter and 2.4% from a year ago. Average deposits, overall, were down 1% quarter over quarter and down 7% year on year to just over $1 trillion as holders, said Barnum, rotated into higher yielding accounts.

Asked on the call about credit performance, Barnum said that “when it comes to card charge offs and delinquencies, there’s not much to see there — it’s normalization, not deterioration. It’s in line with expectations.”

As has been consistent with commentary in bank earnings from earlier this year — noting pressures for specific customer cohorts — Barnum said that there’s “behavior that consistent with a little bit of weakness in the lower income” client base.

Citi’s Take on Consumer Spending

Citigroup shares were 3.3% high in the wake of its own earnings, and many of the same sentiments were shared during that company’s call with analysts – particularly with regards to the state of consumer spending among lower-income cohorts.

The company’s earnings results showed a bit of bifurcation in consumer spending, as higher credit scoring individuals continue to use their cards and lower FICO consumers are falling behind a bit amid evidence of budget tightening.

Spending on Citi’s cards was 3% higher than a year ago. Volumes were up 8% from the previous quarter to $131 billion. At the same time, the average card loans were up 10% year on year to $109 billion. The 90-day delinquency rate was 1.1% in the latest quarter, up 0.28%.

During the conference call with analysts, CEO Jane Fraser said that Citi sees “differentiation in the credit segment, with the lower income-customers seeing pressure,” as management also mentioned of a tightening of budgets.

CFO Mark Mason said in the call that “across our card portfolios, approximately 86% of our card loans are to consumers with FIFO scores of 660 or higher. And while we continue to see an overall resilient consumer … when we look across our consumer clients, only the highest income quartile has more savings than they did at the beginning of 2019. And it is the over-740 FICO score customers that are driving the spend growth and maintaining high payment rates.”

He further elaborated that “lower FICO band customers are seeing sharper drops in payment rates and borrowing more as they are more acutely impacted by high inflation and interest rates.”  To that end, said Mason, “certain pockets of customers continue to be impacted by persistent inflation and higher interest rates resulting in higher losses … [but] we are seeing signs of stabilization and delinquency performance.”

Amazon shares were down 2.8%.  In news reported this week,  the e-Commerce giant’s generative artificial intelligence-powered conversational shopping assistant, Rufus, is now available to all U.S. customers in the Amazon Shopping app.

Introduced in February, Rufus answers questions on various shopping needs and products, the company said on Friday.

Amazon beta launched the shopping assistant in February, saying Rufus would initially be available to a small subset of customers using the company’s mobile app and then would be rolled out to more customers in the U.S. in the following weeks.

Ocado shares were ahead by 17.3%.  A release from Ocado earlier in the week  detailed that it has expanded its partnership with AEON, which initially launched in 2019 to develop the online operations of the AEON NEXT grocery business via the Ocado Smart Platform (OSP), with additional facilities coming online in Japan beginning in 2027.

Meta shares lost 7.7%, and the Enablers segment gave up 0.6%.

As detailed here, Meta, which is still navigating the turbulent waters of its multibillion-dollar metaverse gambit, is now turning to AI as its potential lifeline, with job postings reported by media outlets, including TechCrunch.

“We’re looking to create experiences that change every time you play them,” said the job listing, painting a picture of virtual worlds as dynamic as they are digital. It’s a far cry from the static, often lonely spaces that populate Meta’s Horizon platform.

This pivot comes at a crucial time for the company. Despite selling millions of Quest headsets, Meta’s Reality Labs division has struggled to find its footing, racking up losses of around $50 billion.