Market Snapshot

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📉 Banana Bits

• JPMorgan posts a rare earnings miss as bond trading and deal activity cool

• Fund managers say Treasury yields must reach 5.9% before they favor bonds over stocks

• Goldman Sachs beats profit forecasts as equity trading revenue surges 72% in the quarter

• Higher gasoline and chip costs threaten to push September inflation higher ahead of Wednesday's report

Market News

Stocks Slip as Bank Earnings Deliver Mixed Signals Ahead of CPI

Wall Street finished slightly lower Tuesday as investors reacted to mixed earnings from major banks and another rough day for chip stocks. The S&P 500 fell less than 0.1% to 7,805.45, the Dow dropped 0.3% to 51,670.10, and the Nasdaq slipped 0.2% to 27,204.38.

The S&P 500 remains close to its record high, but chip stocks continued to struggle. Micron fell 3.6% as Chinese chipmaker CXMT's reported advances in memory technology raised concerns about growing competition. Meanwhile, Apple briefly topped $5 trillion in market value and reached a new intraday record as the company introduced its latest smart home products, showing that the weakness wasn't uniform across Big Tech.

Bank earnings were another big focus Tuesday. Goldman Sachs beat expectations, helped by a 72% jump in equities trading revenue, while Citigroup also reported stronger-than-expected profits. JPMorgan posted a rare earnings-per-share miss despite higher profits, while Wells Fargo fell 3.1% after its revenue and net interest income missed expectations.

Outside of stocks, longer-term Treasury yields edged lower, offering some relief after weeks of rising borrowing costs. Oil prices were mixed, with Brent falling 0.9% to $105.69 a barrel while WTI edged higher.

But the bigger test comes this morning, when September's inflation report lands at 8:30 a.m. ET. Economists expect consumer prices to rise 0.6% for the month, pushing annual inflation to 3.6% from 3.4% in August, largely driven by higher gasoline prices. Core inflation, which excludes food and energy, is expected to increase a more modest 0.2%. A hotter-than-expected reading could revive concerns about another Fed rate hike, while softer underlying inflation would strengthen the case for keeping rates unchanged later this month.

Peel Take: Tuesday was a reminder that even strong earnings aren't always enough to push stocks higher. Banks are making money, but investors remain cautious about AI valuations and elevated borrowing costs. Now all eyes turn to inflation. Wall Street is already expecting a jump in headline prices, so the bigger question is whether inflation is spreading beyond energy. If core inflation stays contained, the Fed may have room to hold steady. If it surprises to the upside, Treasury yields could face renewed upward pressure, giving stocks near record highs another problem to worry about.

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What's Ripe

Meta Platforms (META) 2.63% 

• Meta climbed 2.63% Tuesday as investors continued to react to Monday's launch of its new Muse Wonder AI models, designed to compete with advanced offerings from OpenAI and Anthropic.

• Truist raised its price target to $1,000 from $763, citing growing confidence in Meta's AI strategy, strong adoption of its Muse assistant, and opportunities to generate revenue beyond advertising.

• Peel Take: While chip stocks are getting hammered over AI spending concerns, Meta is giving investors something different to focus on: what all that spending might actually produce. The company's latest AI models have Wall Street excited, but turning impressive technology into meaningful profits will be the real test.

Visa (V) 1.74% 

• Visa gained 1.74% to a new 52-week high after receiving preliminary approval from China's central bank to establish a domestic bank-card clearing business.

• The approval marks a significant step toward expanding Visa's presence in one of the world's largest payments markets, although the company still needs final authorization before beginning operations.

• Peel Take: Breaking into China's payments market has never been easy for foreign companies, so this is a meaningful win for Visa. The opportunity is enormous, but so is the competition from established local players like UnionPay. Getting regulatory approval is one thing. Turning that access into meaningful revenue is another.

What's Rotten

Johnson & Johnson (JNJ) 5.73%

• Johnson & Johnson fell 5.73% after its medical technology business reported weaker-than-expected third-quarter sales. MedTech revenue rose 2.5% to $8.64 billion, below analysts' expectations.

• Investors focused on the disappointing performance of that division despite the company's overall adjusted earnings beating expectations and management raising its full-year guidance.

• Peel Take: Beating earnings expectations doesn't always mean a stock will rise. Johnson & Johnson delivered solid overall results, but investors were more concerned about weakness in its medical technology business. When expectations are high, even a relatively small miss in an important division can be enough to drag down the entire stock.

Micron Technology (MU) 3.62%

• Micron fell 3.62% as reports of advances in memory-chip technology from Chinese chipmaker CXMT raised concerns about growing competition.

• CXMT's reported progress in a new DRAM architecture fueled worries about future pricing pressure, although its ability to commercialize the technology at scale remains uncertain.

• Peel Take: Micron has benefited from booming demand for AI memory chips, but competition is becoming a bigger concern. Investors are questioning how long today's leading chipmakers can maintain their technological advantage as Chinese rivals make progress. CXMT still has plenty to prove, but even the prospect of stronger competition is enough to make investors nervous.

🧠 Technical Trip

Interview Q&A from Morgan Stanley

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🦈 Deal Dispatch

M&A, IPOs, And Other Notable Transactions

• Bumble agrees to a $1.3 billion take-private deal with Ithaca Holdings as the dating industry struggles

• Agilent agrees to acquire pathology software maker Proscia for $240 million, plus potential earnouts

• Cardinal Infrastructure agrees to acquire Hughes Brothers Construction for $357.5 million

• Workday agrees to acquire C1.ai to expand identity management for employees and AI agents

• LTC Properties expands its senior housing portfolio with $95 million in acquisitions

Student Success Corner

Banana Brain Teaser

Previous

Company A trades at 20x earnings, while Company B trades at 10x earnings. Company A acquires Company B entirely with stock. Assuming no synergies or transaction adjustments, is the acquisition accretive or dilutive to Company A's EPS?

Answer: Accretive. Company A (20x P/E) buys Company B (10x P/E) using higher-valued stock, increasing EPS.

Today

You draw two cards from a standard 52-card deck without replacement. Given that at least one card is an ace, what is the probability that both cards are aces?

How Would You Rate Today's Peel?

Happy Investing,
Elie, Mitchell, Fernanda, Nick, & Patrick

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