21st June 2024

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Business Industry and Financial

Stock Markets: Investment banking’s coming back

A man walks by the Bank of America headquarters on July 18, 2023 in New York.

Eduardo Munoz | 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

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. Asia-Pacific markets were mixed Wednesday. Hong Kong’s Hang Seng Index slid 1.2%, extending its losses of over 2% yesterday, while Japan’s Nikkei 225 rose 0.78% even as business sentiment in the country fell in July.

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.

Banking boom
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. Meanwhile, 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.

I’m feeling unlucky
Google is cutting internet access for some employees to reduce the risk of cyberattacks, CNBC has learned. Employees chosen to participate in the new pilot program will only be able to access Google-owned websites, and will also be restricted from administrative permissions like installing software. “Googlers are frequent targets of attacks,” one internal description viewed by CNBC stated.

[PRO] Predictions for the global market
The U.S. stock market has rallied this year, but the picture across the world is more varied. CNBC Pro asked 15 market strategists to predict how global stock markets will end the year. Find out which country has the best chance of beating its U.S. counterpart, according to strategists.

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. Even if Goldman beats estimates, keep in mind that analysts aren’t expecting much from the investment bank for the second quarter because of several of its own missteps.