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- [00:00]
Aflac Representative
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Ann Barry
Chipotle, the Mexican food chain is expanding into Mexico. We have the latest on the companies push across the border housing affordability. A new bipartisan law just went into effect. We take a look at the initial market reaction and JP Morgan making US Banking history with blockbuster earnings. We surveyed the results and the surprising contribution that came from one payments OG for Tuesday, July 14, it's Brew Markets Daily. And I'm Ann Barry. More market details to come. But first, JP Morgan leading the charge among the financials with the biggest quarterly result in US Banking history, while the nation's largest bank market cap just under a trillion dollars, up at 910 billion. Well, it just posted a blowout quarter with profit jumping more than 40% to hit over $21 billion, easily surpassing Wall Street's expectations. Well, the sources of that growth had been well tracked for the most part. But there was one little nugget in there that caught our eye, which I'll come back to in just a moment. But we'll start with where that regular way boost came from. Well, to start with volatile markets, as long as they're going sort of up and to the right did make for profitable trading windows and JP Morgan hit this quarter's one hard the bank's equity markets revenue jumped 86% year over year. And as for investment banking, that also came roaring back. That's as corporate deal making or those merger moments we cover here in the show picked up pace. And capital markets activity of course ripped thanks in no small part to the IPO strength that we've been seeing. Plus, consumer and community banking remained resilient. Revenue there up 8%, buoyed by healthy credit trends and steady spending. While CEO Jamie Dimon described the US consumer as quote, fine, which may sound like faint praise, but he did say it was supported by a solid labor market and continued business investment, including by the way, spending tied of course to artificial intelligence. And speaking of AI, Jamie Dimon did comment on how JP Morgan's cost structure has been shifting along with adoption of the technology. The bank cutting jobs in some areas by up to 40% with the use of AI. So drum roll. Here's the nugget that caught our eye and that's a real piece of the bank's blockbuster quarter came from a one time accounting gain tied of all things to its stake in Visa. Yes, the payments OG and here's an interesting lesson coming out of all of this in the merits of long term investing. Many of the country's biggest banks including JP Morgan were original owners of Visa back when it operated as a bank owned payments network. Now when Visa reorganized and went public in 2008, those member banks received equity stakes and JP Morgan held on to much of that investment ever since. Well this quarter the bank finally exchanged some of those shares into a different class triggering a $4.6 billion revaluation gain that flowed through earnings as a result. Now a lot of it on paper but nevertheless the point is that Visa is itself a public company trading under ticker. Yes, Visa, Visa on the New York Stock Exchange and with a market cap of over $670 billion and the stock is up more than 40% over the past five years. That's as electronic payments continue to replace cash around the world and as cross border travel and spending remain relatively robust. Well Visa earns fees every time consumers and businesses use its payment network. So this is a high margin cash flow rich and pretty well risk managed business model. Which means it's turned those legacy bank stakes like JP Morgan's into enormously valuable holdings over time. Well come back on Thursday because we're going to be doing a full sweep of bank sector earnings in our fan favorite format. That's ticker on a sticker. We'll go through the headlines but we'll also cut through them and unearth some more nuggets lurking in the likes of Goldman Sachs, Citi, bank of America and more. So stick with us. Well, coming up in a moment, Congress just passed a historic housing bill. But is it enough to really move the needle on affordability? We're going to break it down. First though, a few headlines from the day's trading session starting with IBM. Water headline for this one. The company on pace for its worst day day in decades where shares in the tech giant were down 25% in early trading. Continue down over that 20% threshold throughout the day. And that's after the company issued a profit warning citing the magnitude last quarter of a shift in its customers capex spending. And what the customers were doing was moving away from products like IBM's anticipated new mainframe offering, instead shifting to spend on AI hardware and memory chips.
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Aflac Representative
Right.
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John Croteau
And yesterday we talked about customers of WD40 stockpiling the product before an announced price hike which pulled sales forward and boosted revenue for the quarter. Well, we saw IBM experiencing the downside of such pull forward spending in the last few weeks of June would be IBM clients shifted their quarterly capex spend towards servers, storage and memory to beat anticipated price hikes. We've been talking about the explosion in the price of memory. In a letter, IBM CEO Abram Krishna wrote, quote, while we anticipated some supply related impact and our expectations, we did not anticipate the magnitude of the CAPEX reprioritization. So we're going to get more insight when IBM releases earnings next week.
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Ann Barry
Lots of eyes going to be watching that one just to see how big the scale of impact really was. Well, sticking with AI and some legislative news out of New York State. That's because Governor Kathy Hochul signed an executive order banning large data center construction in the state for up to a year or two or until a regulatory framework is built to protect the environment and electricity ratepayers. Well, this ban covers facilities that require 50 megawatts or more of power. And it makes New York the first state in the country to enact a statewide freeze.
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John Croteau
Of course, there's many factors involved in energy prices, but New York's electricity rates have risen over 14% just in the past year. And the move comes from Albany amid growing backlash to the AI buildout. A recent Gallup poll found that over 70% of Americans oppose having a data center built near them. And of course, data center buildout will undoubtedly remain in the spotlight in the run up to the midterm elections. Now traveling over to the world of food, Mexican food chain Chipotle is expanding into Mexico.
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Ann Barry
That's right. The company will open its first restaurant in Mexico in Monterrey. That's happening this week as part of a partnership with the restaurant operator Olse. While the duo plan to open more branches later this year, even looking to expand, expand into the capitals that's Mexico city itself by 2027. Chipotle said that the opening marks a significant milestone in its international growth strategy. That's one interpretation. Significant is one way I would interpret this, john.
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John Croteau
Right. Significant. One store in its CEOs words, quote, we are entering Mexico with deep respect for the country's culinary heritage and a commitment to delivering the Chipotle experience with excellence. International expansion is part of Chipotle's plan to keep up with the growth and momentum it saw earlier this year when it posted surprise same store sales Growth in the first quarter. Perhaps the baby step was not quite enough to get investor attention. Shares in the company ticker CMG were mostly flat today. And finally, a few macro headlines, including new numbers from the Bureau of Labor Statistics and commentary from Fred chair Kevin Warsh. Starting with the Consumer Price Index, or cpi, the hotly anticipated key inflation read came in cooler than expected today. Notching its largest monthly drop in six years.
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Ann Barry
CPI fell 0.4% in June, bringing the annual inflation rate down to 3 1/2 percent, which was lower than anticipated, while easing energy costs did contribute to that decline, with the energy index down 5.7% for the month. Bear in mind, though, this is before tensions in the Strait of Hormuz were renewed. And while those numbers are promising, energy prices right now still remain elevated as a result from that same time last year, looking at UPF 15% on a like for like basis.
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John Croteau
So that lower inflation rate of 3 1/2% is still higher than the Fed's goal of 2%.
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Ann Barry
Which brings us to Kevin Walsh, the Fed Chair on Capitol Hill today, testifying before the House Financial Services Committee. I watched a lot of this today. I was glued to hear what was had to say. Well, during the session, he did draw a hard line on prices, telling lawmakers the Fed has, quote, no tolerance for persistently elevated inflation. He doubled down on the message of the importance of Fed independence. And Wash also said the central bank would, quote, take ownership of inflation and he's confident that it has the tools to deliver price stability. But here's one place where Walsh kept mum, and that was about how the committee would achieve that price stability. A silence that was in keeping with his stated view that the Fed should not telegraph its next moves, particularly to the market. That's right.
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John Croteau
And Wash also touted the strength of the US Economy and benefits coming from business investment, particularly those involving AI calling them, quote, the most striking feature of the economy.
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Ann Barry
Right now, Walsh is back in front of the Senate Banking Committee for round two tomorrow, so we're going to keep on watching. Let's take a break. And when we come back, we unpack the market reaction to a historic housing bill that just became law.
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John Croteau
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- [10:23]
Aflac Representative
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John Croteau
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Aflac Representative
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- [10:41]
John Croteau
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Ann Barry
Let's go. Well, for months now, the economic conversation in this country has broadly focused on the issue of affordability. Well over the weekend there was a landmark bill intended to address one particular part of the affordability issue, and that is housing. With this bill becoming law, the 21st century road to Housing act passed with bipartisan majorities. It was first proposed in December 2025 and finally just came into effect as Lord days after President Trump had declined to take executive action on it. While multiple sectors related to the housing market have been tracking and reacting to the legislation as it's been making its way through Congress, driving swings in the stock prices of home builders, mortgage lenders and REITs. We'll get into those in just a moment. Now that the bill has passed, we're going to survey some of the knock on effects that we've seen so far in the markets over the last 48 hours. John, kick us off.
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John Croteau
That's right. And there are seemingly unlimited stats to frame what's happening in the US Housing market. But I'll start with this one that I saw. The median price of an existing U.S. home reached a record in June of $440,000, while the average 30 year mortgage rate stood at about 6 1/2 percent, still elevated from years ago. The new law has nearly 50 provisions aimed at making it easier to build more homes, ultimately making them more affordable. This includes stipulations that promote manufactured housing office to apartment conversions and it would also foster loans and grants to fix older homes. That's the big picture.
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Ann Barry
So when the bill first passed Congress late last month, you can immediately see the impact on housing stocks. The sector had its best day. John. In a year we saw shares and homebuilders like KB Home going up 18%, Dream Finders Homes up 14%. So really around that mid teens mark and all of these since then have settled back close to where they were before the bill was passed. So let's talk about why, despite the pop, we now have seen sort of people selling the news. Right.
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John Croteau
And it might be because some market watchers, along with the White House, the White House has made this, their point, has taken the position that lower interest rates are more important for change than the measures addressed in this bill. The higher interest rates that we've seen over the last several years have created a lock in effect because we've seen it, millions of homeowners secured ultra low mortgages years ago before the rate hikes in 2022. And those folks are reluctant to sell because then they need to buy. They take on an even more expensive mortgage in their next home. So this has stalled the supply of homes and it appears at this moment rates will not be falling soon.
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Ann Barry
Yeah, it's interesting. I was taking a look actually on the prediction market section, one of the big business news platforms over this weekend and my heart sank. I had this pit in my stomach because you could see the odds of a rate hike in the next session going up, which I don't think at the end of last year anybody would have necessarily thought was so clearly potentially on the horizon.
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John Croteau
No, in fact, I was reading articles back from December about the housing and this bill and they were saying, well, we're looking forward to rate hikes. Rate rate, exactly.
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Ann Barry
To have sort of all of these sort of positive, perhaps catalysts converge. We did see last month many Fed officials signaling that they expect interest rates to rise later this year. So we can see where some of those bets and probabilities are coming from. And just today, as we said, Kevin Walsh was in front of Congress and he said the Fed has, quote, no tolerance for persistently elevated inflation, which is langu the markets were typically associated with. If inflation stays where it is, which is above that 2% target, rate cuts are likely to be the tool used to get it back in order. Right.
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John Croteau
And so then we also saw mortgage fintech names popping on the passing of this bill. We saw rocket Companies RKT up 13%, Loan Depot gained 7 1/2% and Penny Mac was up 3 1/2 percent. There's this idea, maybe there'll be movement in the market, there'll be more mortgages. But just like the homebuilders, the share price in these companies has returned back to where the stock was before the bill passed. So that enthusiasm, that hope that maybe there'll be movement in the market has deflated.
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Ann Barry
Probably also just in no small part to the fact that again, since this bill was passed over the weekend. We have seen renewed action in the Middle East. We have seen continued uncertainty around commodity prices, particularly around oil, which is a critical part in the measurement of inflation. So I think as long as the geopolitical instability continues, we're going to see these home builders not quite make up their minds mind in terms of stock price reaction to a bill even one of this kind of magnitude. Well, I wanted to just hark back to one interview that I had here on Brew Markets and it was a conversation with the CEO of Open Door. Now, Open Door is the largest I buyer in the United States. Homeowners can request an automated cash offer from Open Door online and then use the AI native mortgage platform that's available through Open Door to, to find financing options. Well, the CEO argued in my conversation with him that part of the affordability issue could be addressed with reduced fees. He talked about how loan origination, mortgage origination goes through layer upon layer upon layer of underwriting brokerage. And he basically said if, if someone could cut through that, that there was perhaps the opportunity to get rid of some of the friction in the system. Let's listen in his own words to what he had to say.
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John Croteau
The cost of producing a mortgage in the United States today is about $14,000 on average. And you are paying as a customer for a pork barrel buffet of margin of various different companies in the chain of that mortgage.
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Ann Barry
Well, pork barrel buffet, great turn of phrase. I may have to borrow that. We're just taking a quick look at Open Door Technologies. That's ticker Open shares up 400% EU year, not just related to this. There's a lot going on at the company, including turnover of the entire executive team, a lot of cost cutting, a lot of hiring, conversely of tech talent that's focused on AI. Another company that's quote digitizing the mortgage process is better home and finance. That's ticker BETR shares there up 80% year over year.
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John Croteau
One speculative headline that got a lot of attention while this bill was making its way through Congress was that it would stop institutional investors from owning single family homes. Following the 2008 housing cris. Private equity firms and others bought up cheap single family homes, turned them into rentals. And there was some prominent publicly traded single family rental REITs, that's real estate investment trusts. And when this ban was first proposed, the share price in these REITs fell. Invitational Homes, American Homes for rent, both towns 7% Next Point Diversified fell 16%. There was a feeling that this legislation would end the business of these REITs.
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Ann Barry
Right, but now the verdict is truly out. Right. We've seen what the bill has to say. And so the final version does limit any investor who owns currently more than 350 single family homes from buying any more. So there's no adding to that portfolio. But what the bill didn't seem to create was a catalyst for these mega investors to actually sell anything. So it feels as though this may not add to the supply of homes, even if it looks as though it may restrict, you know, taking homes off the market to go into investors portfolios. So all of those REITs now up for the year.
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John Croteau
That's right. And so these are all some examples of the house how the housing policy has made an impact on Wall Street. There was one wild story in the New York Times I just want to flag on the way out here about Wall street having an impact on housing, specifically around San Francisco. And the author went to San Francisco and interviewed a bunch of people and there's an expectation that when OpenAI and anthropic go public, there will be so many new incredibly wealthy people in San Francisco and that housing prices will soar at that time. So folks right now are trying to lock in prices while they're relatively low. They're talking a bit about a land grab out there. From the article, quote, sellers are asking for pre IPO stock as payment for homes and property prices are surging as buyers bet that whatever they overpay today will look cheap tomorrow. The article cites several eye popping stats including that San Francisco sales of homes above $10 million have doubled over the past six months.
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Ann Barry
Lots going on in these different segments of the market. That very high end, you know, not squarely in the sights of this new legislation but certainly you can see the dynamics. It's sort of another example of this K shaped economy. The dynamics on the housing that's available to different income brackets. Just extraordinary. Some of the extremities of the stories that we're saying we're going to keep on watching. Well, it's 4pm on the east coast. The market's wrapping up for today. There's the closing bell and we don't have a ticker tape but we'll throw it over as always to our human ticker, our producer John.
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John Croteau
That's right, the S and the S P 500 finished up 4/10 of a percent. The Dow was flat for the day and the Nasdaq finished up nearly 1%.
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Ann Barry
Well, just a final thought because as we saw the sell off in IBM today, we also saw a number of software stocks sell off, workday being one example. Others, on the other hand, did pop up. And I just wanted to shine a light on the cybersecurity sector. Now in recent months, we've seen models coming out of the likes of Anthropic and OpenAI causing real questions about whether cybersecurity as a sector is going to be at risk. Well, today is a day where cybersecurity shook off the doubters and showed their value. And that was following a joint cybersecurity advisory issued by cisa, the nsa, the FBI and international partners, or the agency's warning that Russian state sponsored actors are actively exploiting vulnerable networking devices and poorly configured routers in order to target critical US US infrastructure. So again, we saw CrowdStrike up just under 10% today. We also saw Zscaler up just under 9%, Cloudflare up just over 3%. So just goes to show, even something like cyber in real flux in these volatile markets. That's it for today's Brew Markets Daily.
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John Croteau
Brew Markets Daily is hosted by Anne Berry and produced by John Croteau, Tarkab Delatif, Avina La Roya and Emily Millard. Our technical director is Uchena Wagu, Brittany Dotaku is our audio engineer and the president of Morning Brew Inc. Is Devin Emmerich.
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Ann Barry
Wake up tomorrow with the Morning Brew newsletter and we'll see you back here tomorrow, same time, same place.