CE 100 Index Slips 1.3% as Bank Earnings Dominate

Banking names grabbed the bulk of headlines for the CE 100 Index as earnings season officially got underway. The CE 100 Index lost 1.3% through the week. 

And except for the Work pillar, which was flat, all segments lost ground. The Shop pillar was off 4%, as Vroom lost 10.9% and Cognex was 9.2% lower.  

In the banking sector, which lost 1% amid mixed performance, JPMorgan Chase shares were up 2%.

During the company’s earnings report, the trends showed resilient card spending but a drawdown of deposits and a gradual uptick in charge-offs. Debit and credit sales volumes were up 8%, to $426.3 billion. Average deposits were down 8% year on year to $1.1 trillion.

During the conference call with analysts, CFO Jeremy Barnum said that net credit costs were $1.4 billion, “predominantly driven” by net charge-offs in the card business.

“Consumer spending growth has now reverted to pre-pandemic trends,” Barnum said during the call. And within the lending portfolio, home lending revenues were down 2% year on year, as originations slipped 15% from last year.

Management said on the call that it expects the 2023 card net charge-off rate to be about 2.5%, which would be in line with the ratio seen in the third quarter and up from the 1.4% seen a year ago.

That outlook is driven at least in part by a “central case” view that there will be, in Barnum’s words, “a very mild recession” with two quarters of negative GDP growth of half a percent and higher unemployment rates. CEO Jamie Dimon added that “this may be the most dangerous time the world has seen in decades,” stating that “if you don’t believe me, remember 1987, 1990, 1994, the year 2000, the year 2009 … people don’t predict those inflection points. My caution is that we are facing so many uncertainties out there.”

Citigroup’s stock added 2.2%. The company’s own results showed that branded card account growth was 5% in the quarter, and spending volume on those cards was up 4% to a bit more than $125.2 billion. Loans 30 days to 89 days past due as a percentage of end-of-period loans were just about 1%, up from 0.6% a year ago.

“The growth in spending is decelerating and the consumer is more mindful of what they spend on,” Citi CEO Jane Fraser said during the earnings call. “Indeed, the affluent, who still have excess savings at their disposal, drove the growth in spending with a continued tilt to travel and entertainment.” Average deposits declined 2% during the same period.

LendingClub shares gave up 5.5%, offsetting the big banks’ gains. 

As reported here, LendingClub is laying off 172 employees — about 14% of its workforce — to cut costs and navigate the “challenging macroenvironment.”

In the same announcement, LendingClub provided preliminary results for the third quarter, saying that the company originated about $1.5 billion of loans during the quarter. The company also expects third-quarter revenue of $198 million to $200 million, roughly in line with consensus.

WeWork Gets a Bounce

Within the Work segment, WeWork gained 5.4%. The bounce came in the wake of the stock hitting an all-time low earlier in the month. 

The company had said it would miss a $95 million interest payment, noting in an 8-K filing with the Securities and Exchange Commission that entering into the grace period would “allow discussions with certain stakeholders in the Company’s capital structure to commence, while also enhancing liquidity.” 

WeWork also said in the filing that “it continues to take action to implement its strategic plan. As part of this strategic plan, the company is focused on rationalizing its real estate footprint and improving its capital structure.”

CrowdStrike was up 5.1%. 

As reported by Yahoo Finance this past week, Artisan Developing World Fund said in its Q3 2023 investor letter that among its top holdings, “CrowdStrike benefited from the resilience of cybersecurity budgets, an increasingly challenging outlook for legacy and smaller next-gen peers and excitement around its platform and artificial intelligence capabilities.”

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