Pre-market actions: Are you trying to make sense of the Omicron market? Look at bank stocks


Traditionally, banks boom during times of expansion and are hit hard during contractions as customers struggle to repay debts. They are also extremely sensitive to interest rates, which affect the amount that banks can earn on loans.

What we are seeing: the actions of lenders like Bank of America (BAC), JPMorgan Chase (JPM) and Wells fargo (WFC) were deceived when news of the Omicron variant first aired. But they have surged in the past two trading sessions as Wall Street decided to allay its pandemic fears.

If traders are right, the way could once again be cleared for central banks to take action to bring inflation under control without slowing the economy.

At an industry conference on Tuesday, Bank of America CEO Brian Moynihan said consumer spending remains extremely high and he has yet to see the impact of the Omicron variant.

“We don’t see any change in behavior here,” he said.

Wells Fargo CEO Charles Scharf also predicted spending will remain strong in 2022. He stressed that it’s not just wealthy customers who still have cash on hand.

“Consumers have… 30%, 35% more in their deposit accounts today than they did before Covid,” Scharf said. “It’s pretty consistent across all levels of wealth. So it’s not just about the rich. It’s the ones who started out with really low account balances.”

There were concerns when Americans’ optimism about their own finances and the overall economy fell to a decade-long low in November, John Heagerty, analyst at Atlantic Equities, told me. Recent polls suggest that many people still feel quite gloomy about the outlook.

But the country’s bank executives point to the gap between concerns about issues like inflation and actual behavior.

“Bank CEOs say, ‘Judge consumers by their actions, not their words,” Heagerty said. “Consumers spend a lot of money even though they claim they are not particularly satisfied.”

If the economy remains strong despite the arrival of the Omicron variant, the Federal Reserve could start raising interest rates shortly.

“Our view is that interest rates will go up several times over the next year and sort of start in the middle of the year, maybe even a little earlier,” Moynihan said.

If interest rates were to rise but the economy weakened, banks would be worried. But for now, they maintain that’s not the case.

Still, lenders will be watching closely what happens next, given the lingering risk of a policy error as the Fed tries to ramp up the pace at which it pulls unprecedented levels of stimulus.

“If the Fed raises rates too quickly, it could tip the economy into recession, which would be bad for the banks,” Heagerty said.

In short: Investors will continue to grab stocks of US banks, which are up 38% this year, if they believe the economy will hold up and the Fed can effectively manage its next moves. It certainly has been this week.

But analysts are on their toes for what happens next. Bank stocks were down slightly on Wednesday in the pre-market.

Instagram chief to testify before lawmakers

Meta, formerly known as Facebook (FB), recently generated a long list of negative headlines. But one issue of particular concern to regulators: the safety of children on its Instagram app.

The latest: Instagram chief Adam Mosseri will answer questions on the subject on Wednesday before a Senate subcommittee. Lawmakers should grill Mosseri on the app’s impact on the mental health of young users and potential solutions.

Ahead of the hearing, Instagram rolled out a handful of new features aimed at making it harder for users, especially teens, to get lost in endless scrolling.

On Tuesday, the company launched Take a Break, a setting that will encourage users to spend time away from the platform after using it for a while. Users can activate the feature and choose whether they want to be alerted after using the platform for 10 minutes, 20 minutes, or 30 minutes. They will then receive a full screen alert telling them to close the app, suggesting they take a deep breath, check a to-do list, or listen to a song.

My CNN Business colleague, Samantha Murphy Kelly, tested the feature before it launched. She reports that while this is a step in the right direction, there is still room for improvement.

For example, users must remain on the platform for a continuous session. If the app closes while you run to the bathroom, or if the screen turns off while you briefly browse Netflix, the timer will reset. And once the prompt encourages a pause, the onus is on the user to resist returning to the app.

Instagram has also said it will take a “stricter approach” to the content it recommends to teens and actively push them to different topics if they dwell on something for too long.

Investor Snapshot: Facebook shares have risen 18% this year, trailing the S&P 500, which is nearly 25% higher. It worked better than Amazon (AMZN) during this period, but is far behind Big Tech names like Microsoft (MSFT), which gained around 50%, and parent Google Alphabet (GOOGL), which increased by 68%.

Can you move the work week? Dubai just made

Workers in the United Arab Emirates and Dubai, its international financial center, are going to have to adjust to different work schedules.

The Gulf state, a first for the region, announced this week that it is shifting to a four-and-a-half-day work week ending at noon on Friday to make doing business easier on a global scale.

Dropping the current Sunday-Thursday schedule will help the UAE “achieve business continuity and alignment with global economies and banks,” the government said in a statement. The change will take effect on January 1 and will apply to government employees and schools.

The United Arab Emirates, which has a predominantly Muslim population, said work would end at 12 p.m. local time on Friday to allow people to attend prayers. Friday is considered the holiest day of the week for Muslims.

While smoothing trade ties around the world, this change will mean the UAE will no longer be in sync with neighbors such as Saudi Arabia, Qatar and Kuwait. Other predominantly Muslim countries – including Indonesia, Turkey, Morocco and Malaysia – have adopted a Monday-Friday schedule, however.

The inhabitants are scrambling to digest the news. The Wall Street Journal reports that restaurants fear the extravagant Friday brunches, which have become something of an institution, are now under threat.

Saturday brunch “doesn’t look so glamorous,” Adrian John, who runs a restaurant review website dedicated to Friday brunch, told the newspaper.

Following

Campbell Soup (CPB) publishes its profits before the US markets open. GameStop (GME) follows after the close.

Also today :

  • US job postings for October arrive at 10 a.m. ET, giving a look at ongoing worker shortages.
  • The Senate hearing on how Instagram protects the safety of children will begin at 2:30 p.m. ET.
Coming tomorrow: earnings of Costco (COST), Broadcom (AVGO) and soft (CHWY).

About Nicole Harmon

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