Inflation reignites and coincides with bank earnings! Wall Street veteran: Keep a close eye on the "credit risk" behind banks’ profit statements.

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U.S. stocks this week welcome the first key verification window of the second half of the year.

On one side is the June CPI data, which will determine the market's expectations for Fed rate cuts; on the other, major banks such as JPMorgan Chase, Goldman Sachs, Bank of America, Wells Fargo will collectively release their second quarter earnings. For the market, the real focus is not just whether inflation heats up again, nor whether banks can deliver better-than-expected profits, but the credit risk signals hidden in the financial statement details—they often reflect real changes in the U.S. economy earlier than official economic data.

In a recent market analysis, seasoned Wall Street trader Lance Roberts, with decades of experience, pointed out that the overall technical trend for U.S. stocks remains strong, but the rally increasingly relies on a handful of large tech stocks, with breadth continuing to narrow. Against this backdrop, if inflation data exceeds expectations, combined with banks releasing credit deterioration signals, the market's bets on a September rate cut may face a repricing.

Technical side remains strong, but rally is increasingly "thin"

From a technical perspective, the S&P 500 index still maintains a bull structure. The index currently runs above both the 50-day and 200-day moving averages, both continuing upwards; RSI is in a neutral range, MACD remains bullish—overall trend has not been broken.

However, there are underlying concerns behind the strength. Recently, the index keeps hitting new highs, but the rise is mainly driven by a few large tech stocks; the equal-weighted index and small caps lag significantly, and trading volume has not expanded simultaneously, meaning market breadth has not confirmed this breakout.

Analysis believes that the June high of about 7612 points is the most critical short-term resistance. If the index can break through with volume, the rally may open further upside space; if resistance is met again, given weak market breadth, the probability of the index testing the 50-day moving average will rise markedly.

CPI determines rate cut trades; major bank earnings verify economic health

The most important macro event this week is undoubtedly the release of U.S. June CPI on Tuesday.

Currently, the market generally expects U.S. June CPI year-on-year growth to be about 3.5%, but the Cleveland Fed's real-time prediction model estimates nearly 4%. This pronounced expectation gap creates substantial asymmetric risk for the market.

If inflation continues to cool, market expectations for a September rate cut will be further consolidated; but if CPI returns to above 4%, investors may have to reassess the Fed's rate cut path, and high-valuation growth stocks will face increased pressure.

At the same time, JPMorgan Chase, Goldman Sachs, Wells Fargo, and Bank of America will release earnings around the same day.

Currently, the market expects Goldman Sachs EPS of about $13.64, JPMorgan about $5.60, Wells Fargo about $1.72, Bank of America about $1.10. More than the earnings numbers themselves, the market focuses on management's latest views on loan demand, asset quality, and outlook for net interest income, as these often reflect changes in the real economy earlier.

What really matters is the "credit risk" in earnings reports

Analysts believe whether EPS beats expectations is often just a short-term trading focus; what truly determines the economic outlook are credit indicators in the income and balance sheets that are easily overlooked.

Among them, loan loss provisions, net write-off rates, credit card delinquency rates, loan balances, and deposit changes are most noteworthy.

If banks start continuously raising loan loss provisions, it means management expects rising default risks; increases in net write-off rates indicate defaults are already taking place; higher credit card delinquency rates reflect rising household debt pressure.

Meanwhile, declining deposit balances signal households are consuming pandemic-era cash reserves; slower or negative loan growth means corporate and household financing demand is cooling in tandem.

Analysts point out that deterioration in a single indicator may not be representative, but if several of these indicators weaken simultaneously, they will issue a signal of economic slowdown earlier than GDP, unemployment, and other official statistics.

Especially as the U.S. job market shows signs of cooling, the importance of these credit indicators rises further. June nonfarm payrolls was only 57,000; if credit card delinquency rates rise at the same time, it means the job slowdown has begun to be reflected in household balance sheets.

Rate cuts may not immediately benefit banks

The market generally believes a Fed rate cut cycle will benefit bank operations, but actual conditions are not so simple.

Banks' core profitability indicator—net interest margin—is essentially the spread between loan yields and deposit costs. When rate cuts start, loan yields tend to drop quickly, while deposit rates adjust more slowly, because banks need to keep deposit competitiveness.

This lag in adjustment means that in the early stages of rate cuts, bank net interest margins may actually be compressed, dragging down net interest income.

Of course, lower financing costs may also stimulate a rebound in loan demand, and drive growth in non-interest businesses such as investment banking and wealth management. Therefore, rather than quarterly results already released, the market is more concerned with bank management's latest guidance on future net interest income and loan demand.

Private credit may be the largest potential risk

Beyond traditional consumer loans, analysis suggests the most noteworthy risk currently comes from the rapidly expanding private credit market.

In recent years, large banks have rapidly grown loans to non-bank financial institutions (NDFI), covering private credit funds, business development companies (BDC), and various direct lending entities.

These assets typically look good on banks' reports, because most credit risk is transferred to intermediary institutions and does not show up immediately in banks' asset quality indicators. But for that reason, once the economy slows and defaults pick up, risks here may be revealed later than traditional loans—but more concentrated.

Currently, the private credit market has expanded to several trillion dollars, but disclosure in this market is far lower than for traditional syndicated loans and has yet to undergo a full economic downturn cycle test.

Analysis suggests that any comments this earnings season about private credit exposures, NDFI loan quality, or provision changes, deserve the market's heightened attention. If banks begin raising provisions for such businesses, the risk signal they emit may be more alarming than a single earnings miss.

Risk Disclosure and DisclaimerThe market has risks; investment needs caution. This article does not constitute personal investment advice, nor does it consider individual users' specific investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein fit their specific circumstances. Investing based on this information is at your own risk. ```