Winners and Losers: Pepsi, Wells Fargo, JP Morgan, and More

This week, the earnings season continues with Pepsi (PEP) posting quarterly results on Thursday. Shares sold off since peaking in May. Investors are unwilling to pay 11.87 times price/book. The sector median is 2.34 times.

Analysts expect Pepsi to post an EPS of $2.16. 13 analysts downgraded their EPS estimates in the last 90 days. PEP stock is a potential losing position if the company disappoints investors with weak results.

On Friday, Citigroup (C), JP Morgan, Wells Fargo (WFC), and Bank of New York Mellon (BK) will post quarterly results. This is a turning point for financial institutions. On June 26, all 31 banks subjected to the Federal Reserve’s stress test were above their common equity tier 1 (CET1) capital requirement. This lets banks to raise their dividend and increase their stock buyback authorization.

Banks have a good chance of holding 2024’s stock rally and potentially moving higher. The stress test assumes a 40% drop in commercial real estate prices. It also models a significant increase in office vacancies, along with a 36% drop in home prices. While this severe scenario is unlikely, anything can happen in this market.

Investors should be wary. The biggest five banks hold $10 trillion in assets. However, their derivative contracts are worth nearly $200 trillion.

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