Proprietary Data Insights
Top Bank Stock Searches This Month
The Juice has three primary goals: To make sense of the economy so, together, we can be better with money and become better investors.
To do this, we follow interesting stories, take them beyond the headlines, and develop themes that merge data from Main Street and Wall Street.
One of our favorite illustrations of this approach: the narrative we’re weaving around consumer debt and savings. The idea that we spend and save in a dichotomous economy of haves and have-nots.
The wealthiest among us are doing super well financially. The rest of us range from doing not quite as well to not getting by.
On Friday, the government releases the latest personal savings numbers. We’ll find meaning in that data next week.
Today, we focus on debt and contrast objective data from the Fed with what big banks are saying about consumers on their recent Q3 earnings calls.
When we dug deep into the Fed’s latest consumer debt data, we found a chart that helps explain, if not validate, much of what we’ve been saying all year about this dichotomous economy.
With savings rates down, consumer debt, particularly credit card debt, continues to soar. But this troubling dynamic doesn’t exist among the nation’s wealthiest.
Source: The Federal Reserve Board
The numbers speak for themselves.
But they don’t mesh well with what big banks said on their earnings calls last week.
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Can We Trust Big Banks?
Last week, The Juice detailed how big banks keep benefiting from rising interest rates at the same time as they effectively screw savings account owners. See that newsletter for an explanation of net interest income and why it’s a key metric to assess when you consider buying bank stocks.
Today, we dig deeper into last week’s big bank earnings calls. Calls where executives continued to tout their informed perceptions of a strong consumer.
Data such as this chart from Bank of America (BAC), the top big bank stock search in our proprietary Trackstar database, backs these perceptions.
Source: Bank of America
It shows a super creditworthy credit card consumer at BofA. This data on delinquencies from the bank further underscores that.
Source: Bank of America
It shows that across the board, credit card delinquency rates remain far below pre-pandemic levels.
Delinquencies of 90+ days are at multiyear lows, with net charge-offs down 54% between Q3 2022 and Q3 2019.
On BofA’s earnings call, execs repeatedly referred to its consumer base as “strong” and “resilient,” noting that card delinquencies would have to climb 30% to come even close to their five-year pre-pandemic average.
According to BofA, its consumers have money to spend. And they’re managing it, along with credit card debt, great.
Similar story of consumer strength, for the moment, at other big banks, including #4 on Trackstar, Wells Fargo (WFC). Here’s what Wells’ CEO, Charlie Scharf, said on his company’s earnings call:
Credit card spend remained strong in the third quarter, up 25% from a year ago, with double-digit increases coming across all spending categories. […]
Credit performance remained strong, with net charge-offs and non-accrual loans continuing to decline from exceptionally low levels. Clients do tell us that they continue to be impacted by persistent inflation, rising interest rates, and tight labor market.
Similar sentiment at American Express (AXP) from that company’s Chairman and CEO, Steve Squeri, on last week’s earnings call:
We’re confident. Look, the spending speaks for itself. I mean, just look at some of these numbers. You’ve got goods and services up 16%.
Our U.S. consumer is up 22%. Millennial spending is up 39%. You know, our T&E spending is up 57%.
International spending is 37%. We haven’t seen any change. And you can look at this quarter over quarter. And, you know, the reality is that, you know, last quarter was a record-level quarter in terms of spending.
And this is like, I don’t know, $1 billion behind or something like that. But if you look at year-over-year growth, we’re not seeing any changes in consumer spending behavior at all. And look, that’s not to say that things may not change, but I can only look at what I’m seeing right now.
Big bank stocks have rebounded nicely over the past month. With the exception of AXP, the ones we highlighted today have significantly outperformed the S&P 500 (SPY) in the last 30 days.
Source: Google Finance
BAC and WFC, both up just over 13%, are still off approximately 29% and 23%, respectively, from their February 2022 highs.
The Juice sees opportunity in this potential upside.
While we’re still concerned about the debt-ridden, paycheck-to-paycheck consumer using Buy Now, Pay Later programs to get by, we’re impressed with the continued personal financial resilience of stronger households.
Even if this upper echelon begins to falter, it’ll take an outright crash among these consumers to hurt the big banks.
Outside of credit cards, the banks report similar strength with mortgages and other debt categories.
Then, of course, there’s the aforementioned net interest income story, which should continue to play out as the Fed keeps increasing rates.
While struggling consumers matter to the economy, they don’t seem to matter much at the moment on Wall Street, particularly at BofA, Wells, and American Express. These banks almost seem immune to the carnage we’re seeing on some parts of Main Street.
As long as the Fed sticks to its plan, we like big banks in the near term. And, given the strong position they seem to be operating from, we like them long term, as long as you’re okay buying the dip that might come when/if a recession officially hits and interest rates start to cool.
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