Q2'24 Earnings Turbulence & Political Uncertainness

Bank Earnings, Economic data & More

The Start to the Second half of 2024

The recent Q2 2024 earnings reports from major U.S. banks have sparked profound concerns about the economy’s trajectory and the sustainability of their stock valuations. While initial headlines tout earnings beats, a deeper examination reveals alarming signals of consumer spending slowdowns and mounting debt burdens. These revelations cast a shadow over Wall Street, as shares of banking giants like JPMorgan Chase, Wells Fargo, and Citigroup faced steep declines on Friday.

As gold soars to a record high of $2,460 an ounce, up 19% in 2024,

driven by both recent bank earnings and U.S. political policies, the faltering financial metrics reported by these institutions signal potential headwinds for both the broader financial sector and the economy at large. Investors are now grappling not only with economic uncertainties but also with the implications of President Trump’s recent announcement of J.D. Vance as his VP running mate. What could this political alliance signify for the next four years, should their proposed policies come to fruition?

Before explaining in detailed analysis of the bank earnings and their ramifications for your investments and the economy, let’s explore the implications of these recent political developments.

Trump/Vance Devalue the Dollar

As President Trump has announced his running mate, J.D. Vance, there is one thing that both of them agree on, and that is to devalue the US dollar. Here is a recent clip from VP candidate Vance.

The 2024 election promises potential shifts in both fiscal and monetary policy. J.D. Vance’s comments on devaluing the dollar to boost exports carry profound implications. While a weaker dollar could make U.S. exports more competitive globally, it also raises the cost of imports, potentially exacerbating the inflationary pressures the U.S. is already grappling with.

If Trump and Vance do devalue the U.S. dollar against major currencies like the Chinese yuan, the cost of importing goods from China—such as Apple’s iPhones—would increase. This devaluation scenario presents a dilemma for companies like Apple: either absorb the higher costs and reduce profit margins, or pass the increased costs onto consumers. In the current inflationary environment, where cumulative inflation has reached 21% over the past three years, many American consumers already lack the disposable income to afford price hikes. Thus, raising prices could further suppress demand, leading to lower overall revenue and diminished earnings for Apple.

This example extends beyond Apple to any company reliant on imported goods. As the dollar weakens, the increased cost of imports could erode the purchasing power of American consumers and businesses, negatively impacting corporate earnings and broader economic growth. The potential devaluation of the dollar thus introduces a significant risk of inflationary spirals, reduced consumer spending, and overall economic stagnation.

The proposed shifts in government monetary policy and the potential devaluation of the dollar underscore the complex interplay between currency value, import costs, and consumer purchasing power. Policymakers must carefully consider these factors to avoid exacerbating inflation and undermining economic stability.

Global Currency Dynamics

The new vice-presidential candidate’s suggestion that the US dollar could be removed as the world’s reserve currency and would carry profound implications as he recently discuss with the Federal Reserve Chair Jerome Powell here.

The dollar’s status as the primary reserve currency provides significant economic benefits, including lower borrowing costs, enhanced financial stability, and considerable influence in global markets. Losing this status could lead to higher interest rates, increased inflation, and a weaker overall economy. It would also diminish the U.S.’s influence in global financial markets, making it more vulnerable to economic shocks.

Since 2000, the U.S. has run persistent trade deficits, relying heavily on imports for many consumer goods. A weaker dollar would increase the cost of these imports, exacerbating inflation—a challenge the U.S. economy is already facing. This scenario could erode purchasing power for American consumers and businesses, leading to higher prices for everyday goods and services.

Gold: A Hedge Against Currency Devaluation and Geopolitical Risk

Regardless of the outcome of the November 2024 election, one asset stands out as a clear winner: gold. Under both Trump’s presidency (2017-2021) and Biden’s administration (2021-2024), gold has seen substantial appreciation, doubling in value (109%) and averaging impressive annual returns of around 12%. This trend reflects a consensus among both political parties to devalue the currency, albeit for different reasons.

The prospect of a Trump-Vance victory suggests a return to policies emphasizing deglobalization, tariffs, trade wars, and heightened foreign currency volatility. Such measures could significantly impact U.S. stocks, creating additional challenges for companies already navigating a complex political and economic landscape.

Amidst this uncertainty, gold shines as a crucial asset in every investor’s portfolio. It serves not only as a hedge against currency devaluation but also as a safeguard against increasing geopolitical risks. The metal’s historical role as a store of value becomes increasingly relevant in times of economic turbulence and policy shifts.

With both political parties leaning towards currency devaluation strategies, gold’s allure as a reliable hedge and investment asset has never been stronger. Investors should consider incorporating gold into their portfolios to mitigate risks associated with potential currency fluctuations and geopolitical tensions ahead.

Bank Earnings

JPMorgan Chase

JPMorgan Chase reported earnings that beat estimates, but the underlying numbers are worrying. A substantial $7.9 billion gain on its stake in Visa bolstered the results, without those gains from Visa, the bank would have missed Wall Street expectations. Net interest income fell for the second straight quarter to $22.8 billion, down from $23.1 billion in the first quarter and $24.1 billion in the fourth quarter of the previous year. The bank also increased its provision for credit losses by 62% from the previous quarter to $3.05 billion, indicating growing stress among American consumers.

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