Rising Borrowing Costs Threaten the Wall Street Party

Key takeaways

Rising interest rates have caused concern among investors about future market activity despite strong bank earnings.
The new DSCR mortgage enables investors to finance properties in low-income areas without traditional income verification, potentially revitalizing distressed neighborhoods.
Despite a surprise increase in September home sales, high mortgage rates continue to suppress overall housing demand.
Kimberly Guilfoyle resigned as ambassador following allegations of soliciting funds from a Trump donor, highlighting ethical concerns in political appointments.
Major US banks posted strong profits in Q3, driven by consumer spending and deal-making, but market volatility kept their stock prices down.
Corporate and consumer activity may slow if interest rates remain high for an extended period, impacting economic growth.
Johnson & Johnson is considering spinning off its hip and knee division, reflecting industry trends toward specialization and divestment.
Safety issues continue to impact Six Flags, with ride closures after fatalities and lawsuits affecting stock performance.
Apple's new HomeView product aims to disrupt the smart home display market, but its success depends on AI advancements and consumer adoption.

Summary

Kimberly Guilfoyle's Resignation and Political Controversy

The episode begins with the news that Kimberly Gilfoil has resigned as the U.S. ambassador to Greece. This follows reports from The Wall Street Journal that she solicited $100,000 from a Trump donor during her confirmation process. Gilfoil's attorney disputes the authenticity of the messages but declines further comment. President Trump stated he hadn't spoken to her and didn't like what he read. Gilfoil has publicly pushed back on the allegations, asserting her intention to defend her reputation. The departure is depicted as a consequence of political and ethical issues surrounding her solicitation of funds.

Educational Changes at Cornell University

Next, the episode reports that Cornell University has suspended fraternity parties for the rest of the academic year amid allegations of sexual violence and a lawsuit from a former student. The university aims to develop safer social alternatives, responding to ongoing concerns about sexual misconduct on college campuses. This situation highlights the heightened scrutiny and national conversation about sexual violence prevention and campus safety.

Housing Market and New Mortgage Innovation

A segment covers the recent uptick in U.S. home sales, with September seeing a 1.5% increase, surprising analysts as it was the first rise since May. However, high mortgage rates—currently near 7.5%—continue to suppress demand. The episode introduces a new mortgage type, the debt service coverage ratio (DSCR) loan, tailored for investors and landlords. Unlike traditional mortgages based on income, DSCR loans focus on the property's rental income potential, making it easier for investors to finance properties in low-income neighborhoods previously deemed too risky. An example is Ashley Wilson, who invests in Cleveland's distressed areas and benefits from these loans, enabling her to renovate and rent properties that are very affordable initially.

Bank Earnings and Market Uncertainty Amid Rising Rates

The episode reviews the strong earnings reported by major U.S. banks like JPMorgan, Goldman Sachs, Wells Fargo, and Citigroup, which posted a 14% increase in profit for Q3, driven by consumer spending, deal-making, and tech investment. Despite these positive results, bank stocks declined, as investors remain cautious due to volatile bond markets and rising interest rates. U.S. Treasury yields have increased, causing uncertainty about future corporate and consumer activity. Bank CEOs express confidence in the current environment but acknowledge the potential for a slowdown if interest rates stay high longer than expected, potentially curbing market activity, consumer spending, and employment.

Additional Business News and Product Launches

The latter part of the episode touches on Johnson & Johnson's plans to spin off its hips and knees division, which could be valued at around $20 billion. The company also raised its annual outlook due to strong prescription drug sales. Meanwhile, Six Flags announced the closure of ten rides following a tragic death of a man on one of its coasters; the company faces safety scrutiny and recent lawsuits over roller coaster injuries, leading to a 14% drop in stock. The episode concludes with Apple revealing its new HomeView smart home hub, a 7-inch tablet and speaker that integrates with other Apple devices. While Apple claims its upgraded Siri AI is significantly better, it still trails behind frontier AI models like ChatGPT, and the success of HomeView depends on market acceptance and AI capabilities.

Show notes

P.M. Edition for Oct. 13. It was another strong quarter for some of the country’s biggest banks, but WSJ banking and payments reporter Ben Glickman says rising interest rates are darkening the mood on Wall Street. Plus, Journal housing reporter Nicholas Miller tells us about a new type of mortgage that’s driving investment in some low-income neighborhoods. And Kimberly Guilfoyle has resigned as U.S. ambassador to Greece following Journal reporting that she had solicited payments from a Trump donor ahead of her confirmation. Alex Ossola hosts.

Sign up for the WSJ's free What's News newsletter.

Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.