IBM’s $69 Billion Crash Explained | Banks Boom as Inflation Cools | Kenny Polcari

Well, good morning. Yes, it's me, Kenny Polcari, coming to you live once again from Cape Cod, and it is going to be a beautiful day here on July 15th, 2026. So here are the things that you need to know to get your day started. Well, IBM came out and confessed and got slammed, losing $69 billion in market cap yesterday. Well, the banks, they came out and they stole the show as they kicked off earnings season. The June CPI came out better than expected. Today we're going to get the June PPI. That's also expected to be better than expected. Kevin, well, he tells Congress that he has zero tolerance for inflation. Oil's up, gold is down, bonds are steady. And what do we have for this night? We're gonna have the risotto alla Milanese. It's perfect for the, for the menu. Well, okay, good morning and sit down and let's discuss what happened yesterday, because if you didn't watch the tape you missed one for the record books, literally. IBM, they just had the worst day in its 115-year history, falling 25.2% or $73 a share to end the day at $217.07, taking it back to the May lows. It was worse than the Black Monday, uh, event when it lost 23% of its value while the Dow lost 22%, the S&P lost 20.5% over that 6 and a day, a 6.5-hour trading period. Meanwhile, 5 of the biggest banks in America reported $49 billion in quarterly profits. And at 8:30 AM, we got the latest CPI report, and that surprised everyone. Not because it was bad, because it was even better than the expectation, suggesting that inflation is cooling faster than expected. Month over month was expected to be down 0.1%. It came in at down 0.4%. Year over year was expected to be 3.8%. It came in at plus 3.5%. And the core CPI was even better, uh, 0% month over month and 2.6% year over year, both better than the estimates. Now today brings us the June PPI report, prices at the producer level, and they too are expected to decline. And again, that makes sense considering what happened to the price of oil during the month. To remind you, it declined about 27% from the high to the low. Gasoline went from an average of $4.50 a gallon to $3.78 a gallon, or a 16% decline in price. And Kevvy Bush? Well, he sat in front of Congress for 3 hours and basically told them nothing at all, right? Today he's going to sit in front of the Senate Banking Committee. Now, stocks started off weak in the pre-market. All the indexes were, uh, leaning a little bit lower as we waited patiently for the banks and the CPI report. Remember, IBM was not on the agenda. But by the end of the day, that all changed. The Dow gained 9 points. The S&P added 28 points even as IBM cratered. The Nasdaq jumped 233 points. The Russell rose by 11 points. The transports gained 28 points. Now, the equal-weighted S&P fell 32 points, and you can, uh, point right to IBM for that, while the Mag 7 gained 224 points. Now, remember on Friday I gave you the playbook? Well, IBM just tested that playbook because I told you that if a company knows it's going to disappoint, the smart move is always to pre-announce, reset the bar, take the hit on your own terms rather than waiting for earnings day. Well, IBM did exactly that. CEO Krishna did not wait until July 22nd when they officially report. He got out front and center with a preliminary warning before yesterday's bell, and the stock got destroyed, down roughly 25%. Revenue coming in at $17.2 billion, barely up 1% against the $17.8 billion estimate. Adjusted earnings per share of $2.93, missing the $3.01 Street number. About $69 billion in market cap went poof, right? Well, so here's the lesson. Pre-announcing forces you to confront the issues and hopefully results in a smaller reaction by investors. But it does not buy you a small reaction when the confession itself is the problem. Christian didn't just say demand was soft. He said clients shifted the CapEx late in the quarter to toward servers, storage, and the memory units to get ahead of the price hikes. He then said that IBM had anticipated some supply chain related impact, but did not anticipate the magnitude of it. And then the line that really did the damage as far as I'm concerned or anyone else, he said, we did not adapt and move quickly enough and numerous large deals failed to close on the timelines we expected. That's not a demand story anymore. That's an execution story. The market, remember, the market can forgive a soft quarter. It has a much harder time though forgiving management when they say we saw it coming but we didn't move fast enough. Pre-announcing resets the number. Yes, it doesn't reset the narrative once the narrative becomes we failed. Capiche? Now, that being said, I own IBM. I've owned it for a while. My cost basis is much lower. So it's not really the end of the world. And while I think the move has created an opportunity, I personally will wait 48 hours after an event like that, um, before I make the next move. If the fundamental reason for owning this stock has changed, then you got to sell it. If it has not changed, then you got to buy more, because that's the way I was taught. So I'm going to stick to that plan because so far it's worked, and that's me. But you do you. Now, this morning, IBM is up 1% as it tries to stabilize. And just FYI, I don't think the fundamental story has changed, just so you know. Now, on to the good news, because there's a lot of it. 5 of the largest banks in the country— JPMorgan, Goldman, Bank of America, Citibank, and Wells Fargo— all reported. And together, they earned roughly $49 billion in second quarter profits, which is a 39% year-over-year increase. JPMorgan posted the best quarter in its history, $21.2 billion in net income, earnings per share of $6.14. Against an estimate of 585. Revenue of $58.02 billion versus $50.19 billion. Right. Equity markets revenue up 86% year over year. Dimon called it a particularly favorable environment. And then he immediately flagged the risks anyway, like he always does— geopolitics, inflation, and stretched valuations. And that's classic Jamie Dimon, right? He always takes the win, but he never stops pointing out the potential potholes. Goldman also had the best quarter in their history. Earnings per share of $20.98 versus the estimate of $14.54, a 44% beat, nearly double a year ago. Net revenues of $20.34 billion, up 39%. Now, if you're wondering where all that SpaceX, uh, underwriting IPO fee income went, well, now you know. Goldman is estimated to have earned about $100 million just from the SpaceX IPO alone. Now, here's the part worth understanding because the stock reaction actually tells you the story. JPMorgan and Bank of America both opened lower, right? They slipped as much as about 1.7% on soft-looking guidance, even with the beat. But both reversed and then closed higher by the end of the day once investors and traders and algos digested the number. JPMorgan finished up 1.5%, Bank of America up 1.25%. Goldman, on the other hand, went straight up 7.6% and is probably what kept the Dow from going red after the IBM hit. Now, from an index perspective, Goldman Sachs' move added 559 points to the Dow, while IBM— IBM's move took 434 points out of the Dow. Now, the real laggards were Wells Fargo and Citibank, both of which beat estimates but still closed lower. Wells Fargo down 3.3% after the CEO Chuckie Sharp's comments— cautious comments for that stock. And then a classic sell the news on Citi, leaving that stock down about 6% on the day, even after they reported highest revenue in a decade and a new $30 billion buyback. That's the rotation, not liquidation thesis playing out inside this one sector. The money didn't leave the financials. It just played musical chairs now. And then there was Kevin Walsh delivering his first Humphrey Hawkins testimony to the House Financial Services Committee yesterday in D.C. After 3 hours of questions, here is what it boiled down to. When asked about inflation, he was very clear. The members of our committee have no tolerance for persistently elevated inflation. Zero tolerance. And then New York Democrat Nydia Velázquez, she tried to be coy and asked him on whether he takes orders from the White House. His answer was even clearer. He said, we're an independent central bank. The translation is, as far as I'm concerned, don't ask me another stupid question, making it very clear that policy decisions will be driven by the data, not by politics. He also confirmed what we already suspected. He is not giving any forward guidance. He walked through those 5 task forces that he announced, right, those committees, and he made it clear that those findings will go to the FOMC members first before they even hit the public space. He called AI the most striking feature of the current economy, with high-tech spending running near 25% growth on a, on a 4-quarter basis. But even he admitted that he didn't know the extent to which the economy will benefit from the AI buildout. But nor did he say that the AI space was irrationally exuberant. Now, the bottom line, he gave the market very little to actually trade on, which in my opinion is okay, right? Because enough of that handholding. We've talked about that before. So I was good with it. Bonds caught a small bid. The TLT up a 10th of a percent, the TLH up 2/10 of a percent. The 2-year is still yielding 4.18%. The 10 years yielding 4.58, and the 30 years yielding 5.10, which still presents a problem for me. Yields remain in the danger zone, and that surely is going to help keep a lid, a short-term lid on stocks. In any event, oil settled at $79.80, up $1.70 or 2%, a 1-month high as the Iran conflict continues to roll on. This morning, oil continues to trade right there at $79.50. Trendline resistance is at $82. Support's way down at 71, right? I think it's going to continue to trade right up in here. Gold continues to bounce around between $4,000 and $4,200. Trendline resistance is really up at $4,320, but it's trading right in that tight range. Yesterday it was up $50, today $50 bucks, say it's down $25 at $4,025 as the gold bugs continue to figure out what the next move is. Other RECO data today includes mortgage apps and the Empire Manufacturing Survey, which talks about the state the economy in the New York region. Today we're going to hear from BlackRock, PNC, Bank of New York, Johnson Johnson, Morgan Stanley, ConAgra, and Elevance, right, representing financials, consumer staples, and healthcare sectors of the economy. European markets are mostly lower. Germany's down 6/10. ASML, right, a key player in this whole AI story, reported and they blew the roof off the house and they raised their guidance. They plan on increasing production and manufacturing capacity for their EUV machines in order to meet demand that is expected to remain strong through 2028. Customers— their customers include Taiwan Semi, Samsung, and SK Hynix, all higher this morning. Now, ASML is up 4% in European trading. US futures are up. Dow futures up 125. The S&P is up 20. The Nasdaq's up 170 and the Russell is up 5 points. The S&P closed at 7,543, up 28 points yesterday. It traded in a very tight range, 7,513 to 7,557. Uh, short-term resistance is really at 7,560, and if we bust up and through that, then the all-time high at 7,620 is going to be the next target. Support remains down at 7,450. You can give me a call at 561-931-0190 because I'm always happy to discuss your goals and your timeline. Let's assess the risk in your portfolio versus your risk for volatility. I'm happy, also happy to do a complimentary, uh, free portfolio review and risk assessment just to help you through it. Anyway, what do we have? A dinner tonight. So this one I think fits perfectly, right? Risotto alla Milanese. Because risotto doesn't forgive a distracted cook. You can't walk away from the pot, uh, you can't rush it, and you can't dump all the liquid in at once and hope for the best. You add the stock ladle at a time. You stir, you wait, you adapt as the rice tells you what it needs. Faltering even for 5 minutes and the whole thing can turn to glue. Sounds familiar? Think IBM. Okay, so for this you need 6 cups of chicken stock kept on a low simmer. You need olive oil, butter, a small onion finely diced. You need 1/2 cups of arroz Arborio or Carnaroli rice, either one is fine. You need 1/2 cup of dry white wine, you know me, Pinot Grigio, Santa Margherita. You need a generous pinch of saffron threads that you've dissolved in about a tablespoon worth of the hot stock. Uh, you need fresh grated Parmigiano-Reggiano cheese and of course salt and pepper. Start by keeping the stock on a simmer, don't let it get cold but don't bring it to a hard boil either. In a wide heavy pot you're going to warm up the olive oil and a tablespoon of butter over medium heat. You're going to add that diced onion. You're going to cook it until it's soft, about 5 minutes. Remember, don't let it burn. Now you're going to add the rice. You're going to toss it, toast it in the oil for a couple of minutes, stirring constantly until the edges turn really glassy, right? Then you're going to add the wine. You're going to stir that until the wine is fully absorbed. Now you're going to add in the saffron, stir that. When that's done, you're going to add in the hot stock, one ladle at a time. Stir each ladle until it's absorbed before adding the next one. It's gonna take you about 18 to 20 minutes. You're gonna stay with it. This is not a moment to check your phone. When the rice is creamy and just tender to the bite, but it's got a little bite in the center, take it off the heat. I'm gonna add another dollop of butter and the fresh grated Parmigiano-Reggiano. This is the step that's gonna make it delicious and glossy. You're gonna let it rest for 1 minute and then serve it immediately in warm bowls. The lesson is here, the same as IBM, the way they learned that lesson the hard way yesterday. You can see the risk coming from a mile away, but if you don't stay with it and it gets away from you fast. So stay close to the pot and enjoy this dish because it is delicious. Anyway, look, today the sun is just coming out. It's a little bit hazy, but not really cloudy. I think it's going to end up being a beautiful day here on Cape Cod. Until tomorrow, take good care.