WSJ What’s News - What’s News in Markets: Rate Signals, Bank Earnings, Delta Drags

Episode Date: July 13, 2024

How are the big U.S. banks dealing with higher interest rates? And why did Delta Air Lines lead other airlines’ stocks lower? Plus, how did glass-maker Corning become part of the AI trade? Host Francesca Fontana discusses the biggest stock moves of the week and the news that drove them. Learn more about your ad choices. Visit megaphone.fm/adchoices

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and this is What's News in Markets, our look at the biggest stock moves of the week and the news that drove them. Let's get to it. This week, all eyes were on the head of the Federal Reserve, Jerome Powell, and markets were mulling the same questions we've been talking about all year. When are we going to see an interest rate cut? Are we even getting any cuts this year? What's it going to take? Powell spent two days testifying in front of Congress, as many of you dedicated listeners might have heard about on What's News a few days ago. We didn't get an exact answer, but we did get a somewhat clearer idea of where his head's at. He indicated that it's now less a question of if the Fed cuts rates this year and more a question of when. So between that and a surprisingly cool inflation reading on Thursday, traders are thinking

that rate cuts could come sooner rather than later. Which, as we've discussed here before, could be a big catalyst for the stock market. In the end, the three major indexes all logged weekly gains. But this week wasn't just about inflation and interest rates. It was also the start of earning season. The kickoff is usually the big banks that reported yesterday, more on those in a bit, but we got some interesting reports earlier in the week, like Delta Airlines on Thursday. The company's quarterly profit dropped 29%, which at first glance might seem off,

because hasn't travel demand been booming post-pandemic? It has, but that's also kind of part of the problem. As Delta's CEO told the Wall Street Journal this week, airlines are flying too much. I'll explain. Yes, travel has been rebounding from COVID. And to keep up with this rebound, Delta and other carriers expanded. They bought planes, hired more staff, and they increased their flight plans. More seats for more flyers. It makes sense, right? Well, now there are too many seats, and airlines are offering discounts to try and fill them, which isn't so good for their bottom line.

Delta's report was disappointing to investors and a drag on its rivals, too. Delta shares dropped 4% Thursday, leading Southwest, American, and United lower. Delta kept falling on Friday, down another 3%. And overall, the stock ended the week with a roughly 5% loss. All right, back to bank earnings. We got updates from some of the biggest players on Wall Street, Wells Fargo, JPMorgan Chase, and Citigroup. The results didn't thrill investors. Here's the CliffsNotes version. Banks are still grappling with higher interest rates and signs of consumer weakness. Wells Fargo and JPMorgan both posted a decline in quarterly profit. In the latter's case, that was excluding irregular income. Citigroup did see

a 10% profit increase, but it also set aside more provisions for potential credit card losses. So how'd the stocks do? Wells Fargo shares lost the most of the three on Friday, ending 6% lower. J.P. Morgan fell 1.2%, and Citigroup dropped 1.8%. But wait, there were some sunnier signs for earnings to come that drove stocks higher this week. Especially for one stock, which might not be a household name, but it does involve a pretty popular buzzword these days. AI. I'm talking about Corning, which is known for making glass for TV screens and smartphones.

It also makes fiber optics products like cables. Without getting too in the weeds, on Monday, Corning said it's seeing strong adoption of its new product specifically for generative AI. So much so that it's raised its quarterly guidance ahead of its earnings report later this month. Plus, the CEO said he expects to see increased sales help push the company back to on-the-year growth. As we've seen with other buzzy AI stocks, Corning had a pretty great day as a result. Its shares jumped 12% Monday, the S&P's best performer that day, and ended the week about 19% higher. And now you know what's news in markets this week. You can read about more stocks that moved on the week's news in The Score,

my column in the Wall Street Journal's Exchange section. I'm Francesca Fontana. Have a great weekend and see you next Saturday.