The CE 100 index gained 1.3% as big banks announced their earnings

Earnings season is in full swing, as big banks – specifically, JPMorgan and Citigroup – help influence the fortunes of the CE 100 index.

The index rose 1.3% for the week as bank earnings reported relative strength in consumer spending, although company management at Citi and JPMorgan noted pressures faced by consumers with lower incomes and lower credit scores.

The banking segment grew by 3.9%, helping boost the performance of the Connected Economy Index.

JPMorgan shares rose 4.3%. In the company’s earnings report released on Friday, data showed that consumers continue to use their cards in full force for both debit and credit payments.

Although there has been some weakness in lower-income segment spending in some pockets, according to management, spending trends are still strong — and opportunities to expand presence in the card market still exist.

The company’s second-quarter results and supplemental showed that credit card debt grew 13% over the past year to $216 billion, up 5% from the first quarter.

Debit and credit card sales volume rose 7% to $453 billion in the most recent period.

Credit Normalization

The net charge-off rate on card loans was 3.5% in the second quarter, up from 3.3% in the first quarter and 2.4% a year earlier, according to company data. Overall, average deposits fell 1% quarter over quarter and 7% year over year to just over $1 trillion as holders, Barnum said, shifted to higher-yield accounts.

When asked about credit performance on the call, Barnum said that “when it comes to card charge offs and defaults, there’s not much to see there — it’s normalization, not a decline. It’s in line with expectations.”

As for the bank’s earnings comments earlier this year – which cited pressure on specific customer groups – Barnum said there was “behavior that is consistent with some weakness in the lower-income customer base.”

Citi’s stance on consumer spending

Citigroup shares rose 3.3% in the wake of its own earnings, and a similar sentiment was expressed during the company’s call with analysts — particularly regarding the state of consumer spending among lower-income groups.

The company’s earnings results showed a slight split in consumer spending, as individuals with higher credit scores continued to use their cards and consumers with lower FICO scores lagged slightly amid evidence of budget cuts.

Spending on Citi’s cards was 3% higher than a year earlier. Volume rose 8% to $131 billion compared to the previous quarter. At the same time, average card debt rose 10% year over year to $109 billion. The 90-day delinquency rate was 1.1%, up 0.28% in the latest quarter.

During a conference call with analysts, CEO Jane Fraser said Citi is seeing “variability across credit segments, with lower-income customers showing pressure,” as management also noted budget cuts.

CFO Mark Mason said on the call that “across our card portfolio, approximately 86% of our card loans are to consumers with FIFO scores of 660 or above. And while we continue to see an overall resilient consumer … when we look at our consumer customers, only those in the highest income quartile have greater savings than at the beginning of 2019. And it’s customers with FICO scores above 740 who are driving spending growth and maintaining high payment rates.”

He further elaborated that “customers in lower FICO bands are seeing sharper declines in payment rates and are borrowing more because they are more affected by higher inflation and interest rates.” In this regard, Mason said, “Some segments of customers are being hit harder by persistent inflation and higher interest rates, resulting in greater losses… [but] We are seeing signs of stabilisation and delayed execution.”

Amazon shares were down 2.8%. Following news this week that the e-commerce giant’s generative artificial intelligence-powered conversational shopping assistant, Rufus, is now available to all U.S. customers in the Amazon Shopping app.

Rufus, introduced in February, answers questions about a variety of shopping needs and products, the company said Friday.

Amazon beta launched the shopping assistant in February, saying Rufus would initially be available to a small group of customers using the company’s mobile app and then be rolled out to more customers in the US over the coming weeks.

Ocado shares were ahead 17.3%. A release was issued by Ocado earlier this year.E Week detailed that it has expanded its partnership with AEON, which was initially launched in 2019 to develop online operations of the AEON Next grocery business through the Ocado Smart Platform (OSP), with additional facilities set to come online in Japan from 2027.

Shares of Meta fell 7.7%, and the Enablers segment lost 0.6%.

As detailed here, Meta, which is still treading the turbulent waters of its multi-billion dollar metaverse gambit, is now turning to AI as its potential lifeline, with job postings reported by media outlets including TechCrunch.

“We want to create experiences that change every time you play,” the job listing says, depicting virtual worlds that are as dynamic as they are digital. This is a far cry from the static, often lonely spaces on Meta’s Horizon platform.

The change comes at a crucial time for the company. Despite selling millions of Quest headsets, Meta’s Reality Labs division has struggled to make a name for itself, posting losses of nearly $50 billion.