TD Cowen says card spending accelerated in first quarter By Investing.com

TD Cowen said Q1 credit card spending accelerated slightly above expectations, helped by earlier Easter timing, while balance growth stayed solid and JPMorgan kept its 2026 loss guidance unchanged. In auto lending, Wells Fargo originations rose sharply year over year, JPMorgan’s operating lease income increased to $1.2B from $1.1B in Q4 and $824M a year ago, and delinquency/charge-off metrics improved at both banks by as much as 61bps year over year. Used car values also rose 4.7% quarter over quarter, supporting auto credit performance.

Analysis

The important read-through is not just that consumer credit remains intact, but that credit normalization is happening without a visible demand air pocket. That is constructive for bank earnings quality over the next 2-3 quarters because growing balances plus lower delinquency roll-rates usually precede a slower rise in provisions than consensus models assume. The seasonal reserve build looks more like prudence than stress, which means banks can defend guidance while still retaining optionality to release reserves later if employment holds.

Within autos, the signal is better for lenders with scale and underwriting discipline than for the broader consumer complex. Improving delinquency metrics alongside firmer used-car values suggests collateral support is still doing part of the credit work, reducing near-term loss severity even if originations cool. That creates a favorable setup for banks with captive-like financing economics and less favorable conditions for non-bank subprime originators, where funding costs and loss content are much more sensitive to any normalization in used-vehicle prices.

The contrarian takeaway is that the market may be underestimating how resilient the consumer is while overestimating the speed of a credit turn. A few quarters of stable delinquencies can meaningfully extend the cycle for lenders, but the setup is fragile to a labor-market wobble or a reversal in used-car prices over the next 6-12 months. In other words, this is a good environment to own high-quality consumer credit exposure, but not to chase the weakest underwriters just because current data look benign.

There is also an indirect read-through to liquidity-sensitive growth names: if consumer and auto credit remain healthy, it delays the broader “stress is spreading” narrative that tends to pressure financing-dependent sectors. That is mildly supportive for sentiment in rate-sensitive consumer names and for any bank-equity basket trades that were positioned for a deterioration in charge-offs by mid-year.

Key Decisions for Investors

• Long JPM / short a regional-bank basket for 1-3 months: JPM is better positioned to absorb a modest reserve build while still compounding fee income; downside on the short leg if credit stays benign, but cleaner relative earnings quality on JPM.
• Long WFC vs. short a non-bank auto lender proxy for 2-4 months: improving collateral and delinquencies should help large-bank auto books more than capital-market-funded subprime platforms, where funding and loss sensitivity are higher.
• Sell downside protection on JPM or WFC into earnings over the next 30-60 days, targeting a 1-2 vol premium capture: the data argue against a sharp credit surprise unless employment weakens abruptly.
• If you want convexity, buy 3-6 month put spreads on high-beta consumer credit names rather than the money-center banks: the trade only pays if used-car prices roll over and delinquencies worsen, which is a cleaner bearish catalyst than a broad bank short.