24th June 2024

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Business Industry and Financial

Investment banking sees signs of life

A woman exits the Bank of America headquarters on July 18, 2023 in New York.

Eduardo Munoz Alvarez | View Press | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Positive market momentum
All major U.S. indexes advanced Tuesday. The Dow Jones Industrial Average had its seventh consecutive day of gains as investors digested better-than-expected corporate earnings. European markets traded higher as well. The benchmark Stoxx 600 index added 0.6% as British grocery delivery firm Ocado surged almost 20%.

Microsoft 365 + $30
Microsoft shares popped around 4% to hit an all-time high after the company announced pricing for its new artificial intelligence service. Named Copilot, the service costs an additional $30 per month, on top of the base Microsoft 365 subscription for Office products. Microsoft also announced its Bing Chat can now respond to images.

The other Morgan
Morgan Stanley’s shares jumped 6.45% after the bank reported better-than-expected second-quarter earnings and revenue. Revenue climbed 2% to $13.46 billion, boosted by a 16% increase in wealth management revenue. Profits declined 13% to $2.18 billion from a year earlier, but investors took comfort in CEO James Gorman’s comments that the upcoming quarter looks “more constructive.”

Banking on Bank of America
Investors pushed Bank of America shares up 4.42% on the bank’s earnings and revenue beat for the second quarter. Both figures were also higher year on year. Profit rose 19% to $7.41 billion while revenue increased 11% to $25.33 billion, helped by a 14% jump in net interest income.

[PRO] Cautious fund managers
In the past days, we’ve heard about how the S&P 500 may hit a record high this year amid a perpetually postponed recession. But fund managers are still cautious, according to the latest Bank of America Global Fund Manager Survey. This is how managers are allocating their investments, and the assets they are worried about.

The bottom line

In another sign the U.S. economy is more resilient than anticipated, banks have had a good showing this earnings season.

Yes, big banks like JPMorgan Chase, Morgan Stanley and Bank of America are supposed to benefit from the higher interest rates that felled regional banks like Silicon Valley Bank and First Republic.

But investment banking activity — which slowed as higher rates first kicked in last year — is seeing signs of a revival.

JPMorgan’s investment banking revenue beat estimates. As Octavio Marenzi, CEO of consultancy Opimas, put it, “investment banking, which has been a problem child over the past year or so, is starting to show signs of life.”

Indeed, investment banking fees for Bank of America increased 7% to $1.2 billion.

And while Morgan Stanley didn’t do so well on the investment banking front, CEO James Gorman said he believes “we are very, very close” to the end of rate hikes. That would give the banking sector more stable ground on which to operate and rebuild.

Regional banks weren’t left out of the surge of optimism in the sector, either. Charles Schwab, which had struggled since the banking turmoil in March, also saw better-than-expected earnings and revenue last quarter. Investors cheered and gave the bank’s shares a 12.57% bump.

More tellingly, the SPDR Regional Banking ETF added 4.22% to hit $45.73, its best day of gains since June 6, and the most expensive it’s been since early March, prior to the failure of several regional banks.

Broader indexes closed higher as well. The S&P 500 rose 0.71%, the Dow Jones Industrial Average added 1.06% and the Nasdaq Composite climbed 0.76%.

Goldman Sachs reports later today, wrapping up earnings from big banks.