Breakfast News: Banks Ace Stress Tests

Breakfast News: Banks Ace Stress Tests

July 2, 2025

1. Fed Health Check Gives Banks Green Light

Major U.S. banks announced new dividend and buyback plans after passing the Federal Reserve's stress tests. This year they simulated a global recession, 10% unemployment, and falling house prices. The scenarios were less severe than in 2024, but each of the tested 22 banks came through with more than enough capital.

• "A sustainable level of capital distribution to our shareholders": JPMorgan (JPM 0.15%) raised its dividend from $1.40 to $1.50 and announced a $50 billion share buyback, which CEO Jamie Dimon said is "supported by our strong financial performance."
• Average 11.6% common equity tier 1 capital ratio: Bank of America (BAC 1.70%), Wells Fargo (WFC 1.64%), and Citigroup (C 1.33%) are among those with new shareholder return plans, as the average liquidity measure came in well above the required minimum 4.5%.

2. Auto Market's 'Trump Bump' Fades

Tesla (TSLA -5.03%) stock fell 5.3% yesterday, ahead of the company's second-quarter deliveries figures due today. Analysts expect a 13% decline to 385,000 deliveries from almost 444,000 in the same period a year ago. Early signs suggest five months of European sales declines up to May are likely to have continued into June.

• Prices up $1,400 from a year ago: Auto sales look set to have slowed in June as the rush to get ahead of tariff price rises cools. Market research firm J.D. Power reports an extra 173,000 sales in March and April as buyers rushed to get ahead of tariffs, saying average prices have risen.
• "Sales pace returned to what I call more normal": Toyota (TM -0.55%) sales in the three months from April to June rose 7.2%, as the company's U.S. sales head David Christ said June was flat.

3. Corona Owner Beer Fear

Constellation Brands (STZ 2.28%) posted misses on revenue and earnings estimates for the first quarter of fiscal 2026 yesterday. Adjusted earnings per share of $3.22 fell short of the expected $3.31, while $2.52 billion revenue only just missed Wall Street's $2.55 billion prediction. The brewer, which relies heavily on imported beer and aluminum, said import tariffs impacted its profitability.

• "Annual operating cash flow and free cash flow expectations are unchanged": CFO Garth Hankinson confirmed a dividend payout ratio of approximately 30%, while the company reiterated its fiscal 2026 guidance.
• Stock down 25% year to date: The stock was down marginally in pre-market trading as CEO Bill Newlands put weaker sales down to "non-structural socioeconomic factors."

4. Jobs Jump, PMI Momentum Builds

Yesterday's Job Openings and Labor Turnover Survey (JOLTS) showed openings unexpectedly at their highest since November 2024. The latest from the Bureau of Labor Statistics showed a count of 7.76 million at the end of May, up from 7.39 million a month previously and ahead of the forecast 7.3 million.

• Above 50 generally suggests expansion: The S&P Global US Manufacturing PMI rose to 52.9 in June, up from 52. The Institute for Supply Management's manufacturing index came in at 49.0, better than expected, as tariffs continue to cloud the manufacturing outlook.
• "I'm not thinking about the pause": President Trump indicated he's not planning to extend the July 9 deadline, as Fed chair Jerome Powell said rates would have been cut by now if not for tariffs.

5. Your Take

Which, if any, financial companies do you have in your portfolio? What led you toward investing in those rather than any others? Discuss with friends and family, or become a member to hear what your fellow Fools are saying.