Good morning investors,
JPMorgan kicked off bank earnings. The company reported a beat on earnings with adjusted EPS of $5.23 versus $5 consensus as equities trading surges 40% to $2.9 billion, validating the bank rally thesis despite the Apple Card portfolio charge. Delta forecasts 20% earnings growth for 2026 with premium cabin revenue finally overtaking coach for the first time, showing a K-shaped economy where affluent travelers drive profits.
CPI data at 8:30 AM expected at 2.7% annually could validate Fed's pause stance as Powell's criminal investigation escalates the independence battle.
BNY Mellon raises medium-term targets by 5 percentage points while Paramount launches proxy fight for WBD board seats, refusing to accept rejection.
Opening Bell: Bank Earnings Deliver
Futures slightly negative with Dow ($DIA ( ▲ 0.47% )) down 3 points, S&P ($SPY ( ▲ 0.72% )) off 0.1%, and Nasdaq ($QQQ ( ▲ 0.89% )) futures down 0.3% ahead of crucial inflation data. JPMorgan ($JPM ( ▲ 0.89% )) shares up over 1% premarket after beating on every metric that matters while Delta ($DAL ( ▲ 2.97% )) falls 5% on revenue miss despite strong guidance.
The Russell 2000 ($IWM ( ▲ 0.0% )) hitting fresh all time highs yesterday confirms small cap breakout continuing despite macro uncertainty. Yesterday's record closes for S&P and Dow show markets shrugging off Fed independence concerns, for now.
JPMorgan's Goldilocks Quarter
Jamie Dimon's bank delivered exactly what bulls needed: adjusted EPS of $5.23 smashed the $5 consensus despite the pre announced $2.2 billion Apple Card reserve. Revenue jumped 7% to $46.77 billion with net interest income matching expectations at $25.1 billion.
The real story is equities trading exploded 40% to $2.9 billion, beating estimates by $350 million. Fixed income trading up 7% to $5.4 billion, also beating. This validates the investment banking renaissance thesis with hedge fund activity driving outsized gains.
Dimon's warning deserves attention: "Markets seem to underappreciate potential hazards, including complex geopolitical conditions, risk of sticky inflation and elevated asset prices." Classic Dimon - deliver blowout results while warning about everything.
Delta's Premium Pivot Pays Off
Ed Bastian's airline perfectly captures the K-shaped economy with premium cabin revenue ($5.7 billion) overtaking coach ($5.62 billion) for the first time in Q4. Main cabin revenue fell 7% while premium jumped 9%, the divergence accelerating.
Full year 2026 guidance of $6.50-$7.50 EPS implies potential records with "virtually all seat growth in premium sector." The 30 Boeing 787-10 order for 2031 delivery shows confidence in long-haul premium demand despite cautious tone after last year's tariff disruptions.
The 5% premarket drop on slight revenue miss ($14.61 billion versus $14.69 billion expected) creates opportunity given strong forward guidance and structural shift toward high-margin premium travel.
BNY Mellon's Quiet Excellence
Robin Vince raising medium term targets by 5 percentage points each, pre-tax margin to 38% and ROTCE to 28%, demonstrates custody banking's hidden strength. Assets under custody surged 14% to $59.3 trillion as market gains compound.
Net interest income up 13% versus 7.5% expected shows even "boring" banks benefit from higher for longer rates. The three year turnaround under former Goldman executive Vince is showing signs that operational excellence over flashy strategies wins out.
Powell's Renovation Scandal
The Fed headquarters renovation ballooning from $1.9 billion to over $3 billion gives Trump legitimate ammunition despite political motivations. Powell managing inflation for America while mismanaging his own building's budget by 60% creates terrible optics.
Two truths coexist: the investigation is politically motivated to force rate cuts, AND Powell badly bungled a project now symbolizing government excess. With Americans struggling with affordability, lavish headquarters renovations look tone deaf regardless of explanations.
Markets hitting records suggests investors believe the investigation won't succeed, but perception damage accumulates. Powell's defiant stance may inspire him to stay beyond his May chair expiration through his 2028 governor term.
Paramount's Proxy War Escalates
After repeated rejections, Paramount launching a board slate to force WBD's hand represents hostile takeover 101. If you can't convince management, replace them with sympathetic directors who'll reject Netflix's $72 billion deal.
The simultaneous lawsuit seeking more information about Netflix negotiations adds legal pressure. WBD maintains Netflix's offer provides more certainty, but Paramount's willingness to fight suggests conviction their larger bid benefits shareholders more.
Credit Card Cap Countdown
Trump's 10% rate cap proposal starting January 20 would devastate bank earnings, and analysts estimate 5-18% impact for diversified banks, catastrophic for Capital One. Current rates averaging over 20% make this massive industry disruption.
The proposal requires Congressional approval, creating uncertainty whether it's serious policy or negotiating leverage. Buy now pay later stocks like Affirm surging shows markets betting consumers would shift to alternatives if traditional credit tightens.
CPI Preview
December CPI at 8:30 AM expected at 0.3% monthly and 2.7% annually, matching November's pace. Core expected to tick up to 2.7% from 2.6%. After shutdown disrupted data, this provides first clean inflation read in months.
With Fed pricing just two cuts starting in June, any upside surprise could eliminate 2026 easing entirely. Services inflation moderating while goods prices reflect tariff pass through creates mixed signals requiring careful parsing.
Final Thought
JPMorgan's quarter shows bank earnings can deliver despite political chaos. Equities trading surging 40% validates capital markets strength while stable credit quality confirms consumer resilience. This sets positive tone for Bank of America, Citigroup, and Morgan Stanley reporting this week.
Delta's premium cabin crossover marks historic shift, for the first time, wealthy travelers generate more revenue than economy passengers. This K-shaped reality benefits investors while leaving middle class further behind. Airlines literally removing coach seats to add premium perfectly captures modern inequality.
Powell's criminal investigation escalating from rhetoric to legal action crosses dangerous lines. Markets may shrug today, but long-term damage to Fed credibility compounds. The renovation scandal's legitimate criticism provides cover for political interference, making defense harder.
Today's CPI data arrives at crucial moment - validate Fed pause or reignite cut hopes. Clean data after shutdown distortions makes this high stakes release. Any upside surprise with Fed under attack could trigger outsized selling.
As always, feel free to reach out with questions about navigating earnings season.
Best regards,
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.