What’s Going On Here?

JPMorgan Chase was all in on the latest trading craze this year: America’s biggest bank by assets reported better-than-expected quarterly results on Friday.

What Does This Mean?

2020, in case you hadn’t noticed, was a year of extremes – and that suited JPMorgan just fine. All the pandemic and election-fueled chaos drove a surge in investor activity and, in turn, record fees for the bank’s trading segment, while the sheer number of initial public offerings gave its investment banking business its own shot in the arm. JPMorgan also freed up money it had previously set aside in case US companies weren’t able to pay back their loans, which suggests it’s starting to feel better about their chances. Whether that’s down to the arrival of coronavirus vaccines or a new round of US government support, take your pick.

Why Should I Care?

Zooming in: Trapeze artists.
While US banks like JPMorgan seem increasingly confident in American borrowers, European banks probably shouldn’t rest on their laurels: the European Central Bank (ECB) warned on Friday that the pandemic’s not done with some of the region’s companies yet. The ECB reckons it’s only government support that’s holding them up, and they could come crashing down when the safety nets disappear.

The bigger picture: Bank with a vengeance.
Things are looking up for US banks: the interest rates at which they borrow money from the US Federal Reserve (the Fed) are expected to stay low, even as the rates they offer their customers creep up. In other words, banks are making more money while their borrowing costs stay the same. The Fed even thinks they’re strong enough to start buying back shares again. All that good news does come with a downside, mind you: investors met JPMorgan’s results – as well as those of rival Citigroup, whose profits also came in better than expected on Friday – with a shrug.

Three Portfolio-Defining Lessons From 2020’s Best Hedge Funds

What’s Going On Here?

A few hedge funds did well last year. Really well. Like… between-50%-and-150% well.

Just ask our old friend Bill Ackman: the activist investor’s firm, Pershing Square, surged 99% in two weeks when its bets against “junk bonds” paid off handsomely.

Moore Capital and Caxton Associates, meanwhile, made their double-digit returns from the reverse approach: they aggressively bought super-safe government bonds.

Others focused on stocks: Skye Global on the tech sector, Third Point on those that benefited from the US election outcome, and Element Capital on those that got a boost from the vaccine.

But here’s the thing: whatever their strategy, the world’s best all had a few things in common.

We thought you might like to know what those shared characteristics were, as well as find out how you can use them to make your own portfolio just as world-class this year. So that’s today’s Insight.

Cloud Pleaser

What’s Going On Here?

SAP released an overwhelmingly adequate fourth-quarter update on Friday, and the cloud provider’s throngs of relatively satisfied investors went mild.

What Does This Mean?

SAP’s last earnings announcement went horribly – so horribly, in fact, that its share price plummeted and lost the software giant its title as Europe’s most valuable tech company. To calm investors’ nerves this time around, then, the software giant opted to deliver last quarter’s more reassuring news – that its profit had beaten analysts’ estimates – earlier than it’d originally promised. And it seemed to work: SAP’s share price barely moved on Friday – a big step up from the 23% drop investors saw last time around.

Why Should I Care?

For markets: Ready, willing, and stable.
Even SAP’s acknowledgement that 2021’s profits might be 6% lower than last year’s didn’t seem to do too much damage to its share price. That might be thanks to some smart preemptive expectation-setting: the company had previously announced that its shift towards cloud computing – which doesn’t benefit from up-front fees like its legacy software does – would negatively impact profitability in the short term. And in any case, SAP was able to point to a 13% growth in its cloud segment’s revenue compared to the same time in 2019. That’s in line with the previous quarter, sure, but it came as welcome news after a few pretty volatile ones.

The bigger picture: Unhealthy competition.
The cloud industry proved it could hold its own during the pandemic, which might be why it’s expected to grow three times as quickly this year as it did last (tweet this). So it’s no wonder SAP has big competition in the segment, with Microsoft, Amazon, and Google all getting involved. That means the pressure will be on SAP all over again when those firms announce their own results, and its investors have a better insight into whether it can keep up with the industry’s heavy-hitters.

You might also like: Why Microsoft might lead the cloud revolution.

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