Citi and JPMorgan Fall, J&J Slides, Applied Materials Drops, Oracle Climbs

Good evening. This is Trade and Ticker. Tuesday, October thirteenth, twenty twenty-six. Your evening company deep dive after the close.

Four stories tonight, and they share one theme: good numbers were not enough. First, the big banks. JPMorgan Chase posted a rare profit miss, Goldman Sachs crushed estimates and still finished lower, and Citigroup had its best third-quarter revenue in a decade and fell more than five percent. Second, Johnson and Johnson, which raised its forecast for the year and still slid almost six percent, because its medical device business came up short again. Third, the chip split. Applied Materials fell almost seven percent after its investor day, and memory stocks dropped for a second day, while Nvidia and A-M-D went up. And fourth, Oracle, which climbed about four percent after laying out how it will power one of its giant A-I data centers, on a day when the bank chiefs spent a lot of time talking about the cost of the A-I build-out. Let's get into it.

A quick look at the board first. On the surface, it was a quiet day. The S-and-P five hundred finished just about flat, down less than a tenth of a percent, and it is still sitting a little below the record it set last week. The Nasdaq dipped about two-tenths of a percent. The Dow fell about a third of a percent, or one hundred eighty points. Small companies in the Russell two thousand fell about four-tenths of a percent. The S-and-P held up best. The Dow lagged, because two of its heavyweights, Johnson and Johnson and Caterpillar, fell hard.

Under the surface, there was a lot more going on. The Dow opened up more than two hundred points on the bank news, then gave all of it back and more. Energy was the best group in the S-and-P, up almost two percent. Healthcare was the worst, down more than one percent, with Johnson and Johnson doing most of the damage. Banks were lower across the board.

Oil was mixed. Brent crude, the global benchmark, settled down about nine-tenths of a percent, at about one hundred five dollars and seventy cents a barrel. That came one day after Brent posted its highest settlement in about a month. U.S. crude rose about four-tenths of a percent, to about ninety-four dollars and fourteen cents, its highest close since late September. Traders weighed hopes that the new U.S. deal on Russian diesel could free up more fuel, against a fight in the Middle East that keeps widening. Saudi Arabia was attacking Yemen's capital today, after the Houthis struck the airport in Riyadh over the weekend, and more tankers have been hit near the Strait of Hormuz. Diesel futures jumped about five percent, a sign the market is not convinced the Russian deal will ease the squeeze.

The ten-year Treasury yield eased to about five-point-two-one percent, down from about five-point-two-four. That's still close to its highest level in more than twenty years. And one Fed official made it clear the Fed may not be done. Boston Fed President Susan Collins said she expects it will be appropriate to raise rates a bit further before the end of the year, to make sure inflation gets back to two percent. She pointed to higher prices for diesel, jet fuel, and heating oil, and to the A-I building boom, as forces that could keep inflation above target in the coming months. The Fed raised rates in September, to a range of three-and-three-quarters to four percent. It meets again on October twenty-seventh and twenty-eighth, though several officials have hinted the next move is more likely in December. The market's fear gauge, the VIX, sat near fifteen, which is calm.

A few other movers before the deep dives. Meta rose about two-and-a-half percent after Truist raised its price target to a Street-high one thousand dollars, citing strong use of its Muse A-I assistant. Caterpillar fell more than three percent, after being down nearly five percent at one point. Bumble soared about fifty-seven percent after the dating app agreed to a buyout worth about one-point-three billion dollars that will take it private. And Domino's Pizza fell almost five percent after scaling back its sales outlook for the year.

That's the setup. Now to the banks.

The big banks.

Every earnings season starts with the big banks, and investors treat them as a health check on the whole economy. Banks see how much people are spending on their cards, whether businesses are borrowing, and whether anyone is falling behind on payments. Today, four of the six biggest reported: JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo. And the headline is a good one. All four made more money than they did a year ago. The consumer is still paying the bills, and businesses are still spending heavily on A-I.

But the stocks told a different story. Citigroup fell about five-and-a-half percent. Wells Fargo fell about three percent. JPMorgan slipped almost one percent. Goldman Sachs jumped about four percent early and finished a little lower. Even Morgan Stanley and Bank of America, which don't report until tomorrow, fell more than one percent each. So what happened? Let's go bank by bank.

JPMorgan first, the biggest bank in the country. It earned fifteen-point-three billion dollars in the third quarter, or five dollars and fifty-seven cents a share. That's up about six percent from a year ago. But analysts were looking for about five dollars and ninety cents. It was JPMorgan's first profit miss in nearly three years. Before today, it had topped estimates in sixteen of the past twenty quarters, so this one stood out.

Part of the miss was a one-time hit. JPMorgan took a loss of six hundred fifty-eight million dollars on securities it sold during the bond selloff. But even without that loss, it would have earned five dollars and seventy-five cents a share, still short of the target. The bigger issue was trading in bonds, currencies, and commodities, which came in about five hundred fifty million dollars below what analysts expected. And costs rose about twelve percent from a year ago, while revenue rose about eight percent. When costs grow faster than revenue, investors notice.

Deal fees grew about fourteen percent from a year ago, but they fell about eight percent from the spring quarter. In the earnings release, chief executive Jamie Dimon said trading and dealmaking "did moderate somewhat" during the quarter. He also said the bank cut back on share buybacks.

There was good news too. JPMorgan raised its full-year outlook for net interest income, the money it makes on the gap between what it earns on loans and what it pays on deposits, to about one hundred six billion dollars. Card balances kept growing, and card losses actually fell from a year ago. And finance chief Jeremy Barnum said the deal pipeline is still strong, and that deals are being delayed rather than canceled.

Then there was Dimon's warning, which is what a lot of people will remember from today. He said large fiscal deficits, sticky inflation, elevated asset prices, rising interest rates, and geopolitical conditions "continue to shift under the surface." He added that these forces may be manageable, but the bank is prepared for a wide range of outcomes. He also told reporters that if the ten-year yield went from five percent to six, it would be more painful than the move from four to five, because everyone would have to pay more for money and roll over their debts at higher rates. He stressed that he was not predicting it. He was saying people should be prepared for it.

JPMorgan stock bounced around all day. It was up about one percent at midday, then faded into the close and finished down almost one percent.

Goldman Sachs. This was the blowout. Goldman earned seventeen dollars and one cent a share, against estimates of about thirteen dollars. Revenue came in at about eighteen-point-seven billion dollars, nearly two billion more than expected. The engine was stock trading. Equities revenue jumped seventy-two percent from a year ago, to six-point-four-four billion dollars. The quarter was full of things that make investors reshuffle their portfolios: the Fed's rate hike, high fuel prices, and a selloff in chip stocks. Every time investors reshuffle, trading desks get paid. Investment banking fees rose twenty-one percent, and Goldman's advisory business, which earns fees for helping companies with mergers, had a record quarter.

So why did the stock give it all back? A few reasons. Trading in bonds, currencies, and commodities was the weak spot, slipping about one percent from a year ago and missing estimates. Investment banking fees fell about five percent from the second quarter. Goldman's backlog of future deal fees came down from the spring, even though chief executive David Solomon called that backlog very robust. And expenses rose about twenty percent, though much of that came from being busier.

Solomon said the I-P-O market was wide open, but some companies that expected a certain price for their shares, and got ten to fifteen percent less, chose to wait. That's a small but useful detail. It tells you dealmaking did not stop. It got pickier when bond yields jumped.

Solomon also faced questions about reports last month that he could hand the top job to his deputy, John Waldron, as soon as next year. His answer was direct. "There is no succession transition or timeline underway at Goldman Sachs." He added that he's really enjoying the job. Goldman finished down about a quarter of a percent.

Citigroup. On paper, this was a strong quarter. Citi earned two dollars and eighty-five cents a share, against estimates of two dollars and sixty-six cents. Revenue was about twenty-three-point-nine billion dollars, its best third quarter in a decade. Its services business, which moves money and manages cash for big multinational companies, grew about fifteen percent. And Citi raised its full-year outlook for net interest income outside its trading business.

But investors compared it with the spring, not with last year. Profit fell about ten percent from the second quarter. Trading revenue fell about thirteen percent from the second quarter. Investment banking fees fell thirteen percent too, the biggest drop among the four banks that reported today. And on the call with analysts, Citi said trading revenue usually falls about twenty percent from the third quarter to the fourth, and this year could be a bit worse after such a busy first half. That was a tough message for a stock that had been one of the better bank performers this year.

Chief executive Jane Fraser did sound upbeat about the economy. She said that while much has been made of the A-I boom, the consumer is still driving much of the growth in the U.S., the labor market is stable, and companies remain active. Citi shares still finished down about five-and-a-half percent, the worst of the big banks.

Wells Fargo. Wells earned a dollar eighty-seven a share, a couple of cents better than expected, helped by solid loan growth. But net interest income, its biggest source of revenue, came in a little below estimates, at about twelve-and-a-half billion dollars. Total revenue missed by more than four hundred million dollars. Wells said lower rates on some of its floating-rate assets, higher deposit costs, and fewer accounts that pay no interest all weighed on that number.

Chief executive Charlie Scharf gave one of the clearest warnings of the day. He said inflation and higher interest rates continue to be headwinds, and the longer they persist, the more pressure they can put on both consumers and businesses. Still, finance chief Mike Santomassimo told CNBC that both consumers and businesses are doing really well, and that he isn't seeing any cracks in late payments. Wells Fargo shares fell about three percent.

So what do the four reports tell us together? First, credit looks fine. People are paying their bills, card losses are steady to lower, and none of these banks is warning about a wave of bad loans. Second, the Wall Street boom of the first half cooled in the third quarter. Trading and dealmaking slowed late in the quarter, when bond yields jumped and some companies held off on selling stock. Third, every one of these chief executives is now talking about interest rates. Higher rates help banks earn more on loans, but they also raise what banks pay on deposits, squeeze borrowers, and slow down deals.

Bank of America and Morgan Stanley report tomorrow morning. Bank of America chief executive Brian Moynihan already warned in September that third-quarter investment banking fees were headed for a decline of more than ten percent from a year ago. Morgan Stanley is the big test for stock trading and wealth management. That's the first deep dive.

Johnson and Johnson.

This is one of the steadiest companies in the market, and today it fell almost six percent, to about two hundred forty-nine dollars. It was the biggest drag on the Dow, and the main reason healthcare was the worst group in the S-and-P.

The overall numbers were fine. Sales rose about six percent, to twenty-five-point-four billion dollars. In the U.S., sales grew about nine percent. And the company raised its forecast for the full year, for both sales and adjusted earnings. It now expects adjusted earnings of about eleven dollars and ten cents a share at the midpoint, up six cents from its last forecast.

The problem was the medical device business, which J and J calls MedTech. That covers heart devices, surgical tools, contact lenses, and hip and knee implants. MedTech sales grew only about two-and-a-half percent, to about eight-point-six billion dollars, short of analyst estimates of about eight-point-seven billion. Outside the U.S., device sales were basically flat. And this is the second quarter in a row that MedTech has missed.

The company didn't sugarcoat it. Tim Schmid, who runs MedTech, said, "Our performance is below the standard we have set internally and below the expectations we previously communicated to investors." The company pointed to geopolitical issues, including the conflict in the Middle East. One Wall Street analyst noted that J and J is dealing with its own set of disruptions, from supply in China to the planned separation of its orthopedics business, so it's hard to read this as a problem for the whole medical device industry.

That brings us to the second part of the story: hips and knees. J and J said last year that it plans to separate its orthopedics business, called DePuy Synthes. Earlier this year, there were reports that it might sell all or part of that business instead. Today, on the earnings call, the company said it is leaning toward a spinoff as the best option for shareholders, and that the separation is still on track for the middle of next year. In a spinoff, existing J and J shareholders get shares in the new company, instead of J and J bringing in cash from a buyer. One portfolio manager said low valuations for medical device companies probably made it harder to sell the business, and that may also be weighing on the stock.

The drug business, which J and J calls Innovative Medicine, did much better. Sales there grew almost eight percent, led by drugs like Tremfya for psoriasis and Darzalex for blood cancer. That growth came even with a big drag from Stelara, an older blockbuster that now faces cheaper copies. One more thing in the report: earnings per share on a reported basis were just nine cents, because of a one-time charge tied to the company's proposed settlement of talc lawsuits, plus costs for two deals. On an adjusted basis, J and J earned two dollars and fifty-nine cents a share.

Healthcare had another big report today that tells a similar story about expectations. UnitedHealth Group, the country's largest private health insurer, beat estimates and raised its profit outlook for the year to at least twenty dollars and fifty cents a share, up from a range of nineteen dollars and fifty cents to twenty dollars. Its medical cost ratio, the share of premiums it pays out for patient care, came in around eighty-eight percent, better than the almost ninety percent analysts expected. A lower number means more profit. That's a big deal for a company that has spent two years fighting high medical costs.

The stock jumped before the opening bell. By the close, it was down about two-tenths of a percent. Finance chief Wayne DeVeydt cautioned that medical costs remain elevated versus historical norms, and said investors should keep an eye on that, even with the better ratio.

So here's the takeaway from healthcare. J and J's drug business is strong, and the company still raised its outlook. UnitedHealth's turnaround is gaining ground. But the stocks are priced for good news, and investors are selling first and asking questions later. For J and J, watch whether the device business can turn around by the end of the year, and whether the orthopedics spinoff stays on schedule. That's the second deep dive.

The chip split.

Now to the chip stocks, where the story split right down the middle. The Philadelphia semiconductor index fell only about two-tenths of a percent. But that small number hides a big gap. Nvidia rose about one percent. A-M-D rose about two percent. Intel and Broadcom rose too. Meanwhile, the companies that make chipmaking machines, and the memory makers, got hit hard.

Start with Applied Materials, the biggest U.S. maker of chipmaking equipment. It fell almost seven percent, to about four hundred sixty-four dollars, one of the worst performers in the S-and-P five hundred. It was the stock's sixth straight losing day, and over those six days it has fallen about fourteen percent.

The trigger was the company's investor day at the SEMICON West trade show in San Francisco. Investors went in hoping for a clear forecast of how much the industry will spend on chipmaking equipment. Applied declined to give one. The company pointed to things outside its control, like how much clean-room space is available to install new machines, supply-chain limits, and how the power for new chip factories gets financed. For a stock that has run this far, a missing number was enough to set off the selling.

And it has run. Even after this slide, Applied Materials is still up about eighty percent this year, on pace for its best year since twenty twenty-one. But it is also more than a third below its record close from the end of June. That tells you how wild the ride has been for this group.

The rest of the equipment makers followed. Lam Research fell almost three percent, and K-L-A fell about three percent. A-S-M-L, the Dutch company that makes the most advanced chip printing machines in the world, fell almost two percent, and it reports results tomorrow morning. That makes A-S-M-L's orders the next big test for the whole group. Back in July, it guided for third-quarter sales of eleven to twelve billion euros. Investors will care even more about new orders, and about what A-S-M-L says about next year.

Then there's memory. Micron fell about three-and-a-half percent, to about nine hundred fifty-three dollars, after falling almost four percent on Monday. The worry is the same one from yesterday. China's biggest memory chipmaker says it is making progress on a denser memory design, and investors are asking whether Chinese competition could eat into the very high profits that memory makers are earning right now.

That fear hit hardest in South Korea, home to the two biggest memory makers. South Korea's main stock index, the Kospi, plunged about five-and-a-half percent. Samsung Electronics fell about seven percent, and S-K Hynix fell about ten percent. Here at home, storage names Western Digital and Seagate slipped as well.

So why were Nvidia and A-M-D up on the same day? Because today's worries were specific. Demand for A-I chips is not the question. In fact, Goldman's Solomon said this morning that demand for computing power significantly exceeds supply right now, and Wells Fargo's Scharf said demand for semiconductors, networking gear, and data center equipment continues to surge. The questions are about who keeps the profits further down the supply chain, and how fast new factories can actually be built. Memory makers face new competition. Equipment makers face questions about timing. Chip designers like Nvidia and A-M-D, for now, are still in the driver's seat.

On chips, watch three things. First, A-S-M-L's orders tomorrow morning, and whether they calm the equipment makers. Second, whether the memory selloff in Asia keeps going overnight. Third, Taiwan Semiconductor, the world's biggest contract chipmaker, which reports on Thursday. That's the third deep dive.

Oracle and the cost of A-I.

Our fourth story is about what it takes to build A-I, and who pays for it. Oracle rose about four percent today, to about one hundred forty-three dollars, one of the best days among the big tech names.

Oracle is building a giant A-I data center campus in southern New Mexico called Project Jupiter. And with any project like this, power is the hardest part. Oracle's plan is for the site to run mainly on its own fuel cells, made by Bloom Energy, rather than leaning on the local grid. Today, Oracle said that plan has not changed.

What's new is a proposed agreement with the local utility, El Paso Electric. The utility would supply power for the last stage of construction, for testing when the site is first switched on, and for emergency backup and worker safety. Oracle expects to pay ten million dollars a year for ten years, even if it uses less power than it signed up for. That money helps cover the cost of the shared power system, so local customers don't get stuck with it.

On top of that, Oracle proposed giving local homes and small businesses as much as fifty-five million dollars a year in electric bill credits, for up to three years, starting as early as twenty twenty-seven. Oracle says the full plan could deliver at least one hundred fifty-five million dollars to offset customers' utility costs.

Why does a deal like this matter for a stock? Because one of the biggest sources of pushback against A-I data centers right now is local. People worry that these giant sites will drive up their electric bills. Oracle signed a White House pledge earlier this year to pay its own way on energy costs, and this plan goes a step further by paying its neighbors directly. Mahesh Thiagarajan, who runs Oracle's cloud infrastructure business, said, "We realize the impact that electric rate increases have on the community, and our proposed solution takes that burden off of New Mexico ratepayers." He said Oracle is acting well before the data center comes online.

For investors, anything that lowers the risk of delays on these huge projects is worth something. And the details still have to be filed and approved, so this is a proposal, not a done deal.

This ties right back to the bank calls this morning, because A-I was the topic everyone wanted to talk about. Goldman's Solomon said Goldman expects to be in the middle of financing the build-out. But he also warned that as financing needs grow, pressure on interest rates could affect the returns and even the viability of some projects. He said there will be a point when this resets, and when it does, there will be some bumps. JPMorgan's Barnum said the bank's exposure to A-I lending is still quite modest, but that no one would be immune to a major change in sentiment about A-I. And Wells Fargo's Scharf said the scale of this investment increasingly resembles past infrastructure booms, with big opportunities, but also real risks, given how much borrowed money is funding it.

Put those together, and you get one of the biggest questions hanging over this market. The A-I build-out needs huge amounts of power, chips, and money, all at a time when long-term interest rates are near their highest levels in more than twenty years. Oracle's move today shows investors will reward companies that solve the practical problems, like power and local costs. Applied Materials' drop shows how fast they punish uncertainty about timing. That's the fourth deep dive.

So let's bring it all together. The S-and-P finished flat and is still near its record, while the Dow fell about a third of a percent. The big banks showed healthy consumers and solid credit, but a cooling in Wall Street trading and dealmaking late in the quarter, and the stocks fell, led by Citigroup. Johnson and Johnson raised its outlook but fell almost six percent on another miss in medical devices and a likely orthopedics spinoff. Chip equipment and memory stocks dropped, led by Applied Materials, while Nvidia and A-M-D rose. And Oracle climbed on a plan to power its New Mexico data center and help pay its neighbors' electric bills.

Here's what to watch into tomorrow. At eight-thirty Eastern, we get the September consumer price index, the biggest inflation report of the month. Economists expect prices rose about six-tenths of a percent in September, and about three-point-six percent from a year ago, with energy doing most of the pushing. Core inflation, which strips out food and energy, is expected at about two-point-five percent from a year ago. A hot number would add to the case for another Fed hike. Bank of America and Morgan Stanley report before the opening bell, and A-S-M-L reports early as well. Then on Thursday come producer prices and Taiwan Semiconductor. We'll have the inflation numbers, the bank reports, and the futures board on tomorrow morning's show, before the opening bell.

That's your evening company deep dive. Enjoy the rest of your night. Thanks for listening. I'm Trade and Ticker.