Stocks opened lower and bounced around the breakeven line before optimism about U.S.-China relations and earnings from banks both big and small took hold among buyers during the last session of the trading week. Trade war and credit concerns ebbed, and a risk-on mood prevailed as a volatile five days ended on positive notes.
In an interview with Fox Business, President Donald Trump acknowledged that a maximum 157% tariffs on exports to the U.S. from China can’t go on for long. “It’s not sustainable, but that’s what the number is,” Trump said. “It’s probably not, you know, it could stand. But they forced me to do that.”
The president also affirmed that he and Chinese President Xi Jinping will meet in South Korea “in a couple of weeks” and expressed optimism about their upcoming talks. “I think we’re going to do fine with China. I get along great with him. He’s a very strong leader, a very, you know, amazing man,” the president said of his counterpart. “But we have to have a fair deal. It’s gotta be fair.”
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The Cboe Volatility Index (VIX) crested early at 28.99, up from 25.31 on Thursday and as high as it’s been since reaching 29.66 on April 24, and fell back to 21.46. The VIX has risen from 16.43 on October 9. A “normal” range for what’s widely recognized as the market’s “fear index” is between 12 and 20.
At Friday’s closing bell, the blue chip Dow Jones Industrial Average was up 0.5% to 46,190 and climbed 1.6% for the week. The broad-based S&P 500 had added 0.5% at 6,664 to extend its five-day gain to 1.7%. The tech-heavy Nasdaq Composite was higher by 0.5% to 22,679 and posted a 2.1% weekly rise.
Is the system full of cockroaches?
Zions Bancorp (ZION, +5.8%) rebounded on Friday after a $50 million charge-off in its third-quarter earnings report caused it to fall 13% and lose about $1 billion in market cap on Thursday.
Regional banks recovered too, though small-cap stocks, as represented by the Russell 2000 Index, saw a 0.6% decline but still finished up 2.4% for the week.
JPMorgan Chase (JPM, -0.3%) CEO Jamie Dimon referred to a couple of regional banks as “cockroaches” during his comments to analysts following his bank’s third-quarter earnings report. The comment went viral, and, as Louis Navellier of Navellier & Associates observes, “Several regional banks posted larger-than-expected loan-loss reserves, the highest in three years.”
Higher provisions for credit losses “spooked the market and reignited fears of more ‘cockroaches’ lurking in the banking sector.”
On Friday, Baird analyst David George raised his rating on ZION to Outperform (or Buy) from Neutral (or Hold) and reiterated his $65 12-month target price. George said Thursday’s sell-off was “overdone,” citing “disciplined” loan growth.
“We feel like the panic selling provides a great opportunity to buy ZION shares here,” George concluded. “The fraud-related nature of this announcement leads us to believe this is a unique borrower rather than anything systemic.”
The membership is spending
American Express (AXP, +7.3%) was the best-performing Dow Jones stock on Friday after management reported earnings of $4.14 per share (+18.6% year over year) on company-record revenue of $18.4 billion (+10.7% YoY). Wall Street expected EPS of $4.00 on revenue of $18 billion.
Management cited higher spending among its affluent customers, as credit card member spend growth accelerated to 9%. Based on its strong year-to-date performance, management raised its full-year guidance to EPS of $15.20 to $15.50 on revenue growth of 9% to 10%.
“The successful launch of our updated U.S. Consumer and Business Platinum Cards reinforces our leadership in the premium space,” said CEO Stephen Squeri.
Praxis!
Praxis Precision Medicines (PRAX, +16.8%) enjoyed another big day on the price-action front, adding $500 million more to a market cap that’s climbed from just north of $1 billion on Wednesday to near $4 billion.
On Tuesday, management reported positive results for its experimental drug to treat “essential tremor,” a nervous system condition that causes involuntary shaking in the hands and arms with no specific treatment yet.
That marked a dramatic counterpoint to a February recommendation by an independent data monitoring committee overseeing the study to stop it “for futility, due to the results being unlikely to meet the primary efficacy endpoint under the parameters set by the statistical model.”
