Banks' resilience drives new highs

Last week, the major US banks generally reported favorable results for the third quarter of 2024, with the S&P 500 banking sector index gaining 5% since Friday, October 13. JPMorgan and Wells Fargo beat expectations, showing resilience in consumer activity that was stronger than expected despite the economic challenges. Both banks reported higher than expected revenues.

The results of the largest US bank, JP Morgan, were mainly driven by growth in net interest income (NII), which is the income that banks earn from the difference between the interest they charge on loans and the interest they pay on deposits. Even with the high costs of deposits, which have affected banks' profits due to high interest rates, JP Morgan managed to increase NII. Another positive factor was the strong performance of investment banking, which recorded a 29% growth in revenues, driven by an increase in commissions, especially in payment services and capital markets. This growth helped offset the slight drop in net profit, which was due to an increase in loan loss provisions in preparation for possible economic difficulties. Despite these challenges, the bank managed to exceed earnings per share expectations, thanks to resilience in the share trading segment and a favorable performance in asset management.

Nvidia's shares hit a new all-time high this week, surpassing the previous high of 140.76 dollars set on June 20. This appreciation was mainly driven by strong results from Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest chip producer, which reported an impressive 54% growth in its third quarter profit, beating expectations. In addition, Nvidia benefited from a promising week when the chipmaker's main customers presented new technologies that increased demand for the company's graphics processing units (GPU). Among the biggest buyers of Nvidia's GPUs are tech giants such as Microsoft, Meta, Google and Amazon, which are purchasing large quantities of these chips to support their artificial intelligence (AI) projects. At the beginning of the week, Nvidia's shares had already risen by 2.4% in a single session, boosted by this positive scenario. This context highlights Nvidia's central role in supplying GPUs for AI-oriented technological infrastructures.

The ECB cut its interest rate by 25 points, the third cut this year but the first consecutive cut in 13 years. Recent economic data from the cut argument that lower interest rates favor the valuation of sovereign bonds and reduce financing costs for companies, relieving pressure on the economy. 

Despite the economic challenges, JP Morgan and Wells Fargo reported higher than expected revenues.

Paulo Monteiro Rosa
Senior economist at Banco Carregosa