The market is in a bit of a tailspin again as concerns about a lack of progress on fiscal stimulus and the tumultuous election way down sentiment. While it seems unlikely a new stimulus package will get put out before the election, I think it is very likely one of significant size will come within a few months, as the economy certainly needs it. You can’t have businesses forced to shut down and not compensate them and expect things to go well. We are just in a really toxic political environment knives are at each others throats unfortunately. There are a few pieces of good news though in underlying business performance, as we see a few companies that report earnings early give their numbers. Remember, the stock market will do what it does in the short-term, but ultimately it is the business performance that will drive stocks. If the underlying businesses are healthy, the market will ultimately reward them. With prices at discounts to liquidation value, being profitable and growing book value per share are very good indicators of future stock performance.
1) Jefferies Financial had an amazing quarter with revenue doubling YoY. This bodes very well for the investment banking divisions of companies like C, BAC, MS, GS, and JPM. https://seekingalpha.com/news/3616711-jefferies-financial-jumps-9_0-after-boosting-buyback-strong-q3
2) CarMax had a fantastic quarter seeing comparable sales growth, amidst very strong used vehicle volumes and pricing. This bodes very well for ALLY Financial and the other banks in terms of their auto finance divisions. Credit actually improved YoY too. There is huge demand for used vehicles since less people are using mass transit and new car inventory levels were low from the lockdown, which shut manufacturing for a few months. Used car prices are important because when someone defaults the cars are repossessed and sold. That greatly mitigates the losses to the lender when those prices are going up, as they naturally expect them to depreciate.
3) The 3rd quarter is usually a soft one for the big banks in terms of their investment banking revenues. The first two quarters have been absolutely massive, keeping them profitable despite huge credit reserve builds to deal with the recession. This 3rd quarter is going to be exception and revenues are going to be up substantially YoY. Loss reserves will be far less than the first two quarters. While there is pressure on interest rates and loan demand, the stocks more than reflect those issues. Earnings should come out in about 3 weeks, so I think that could be a positive catalyst. Here is a WSJ article that breaks it down a bit: https://www.wsj.com/articles/banks-are-loving-2020-market-but-market-doesnt-love-them-back-11600939813?mod=hp_lista_pos2