The Tax Cut and Jobs Act helped power the biggest U.S. banks to record profits for the second straight year.

• But rather than use the money to hire a bonanza of workers or invest in big new capital projects or equipment, the banks used it largely to buy back stock and pad their balance sheets, data analysis from Bloomberg shows.

Why it matters: The tax cut was sold as a way to revitalize hiring and spending by American companies to boost the economy and help struggling workers, but the windfall is largely staying with banks and their shareholders.

By the numbers: JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley announced earnings this week showing they saved $18 billion in 2019, and their average effective tax rate fell to 18% from 20%.

• Banks had previously paid effective tax rates of around 30%, Bloomberg found.
• The tax savings helped the six firms post $120 billion in net income for 2019, slightly higher than the previous record for profits set in 2018.
• Until the tax cuts, the six banks had never surpassed $100 billion.

The big banks so far have reported stellar earnings from Q4, with the exception of Wells Fargo.

• Wells Fargo faced a series of scandals and set aside $1.5 billion for legal costs during the year, but still managed to save $3.3 billion on its tax bill last year.

The intrigue: The big banks have actually shed jobs since passage of the tax cut law, collectively reducing their workforce by 1,200 people since 2017, Bloomberg reported.

• "To be sure, hiring and firing was mixed among the six lenders, and some raised base pay or enacted special bonuses. Some also updated investors this week on investments in technology to automate jobs."
• "Shareholders were big beneficiaries. After banks cleared the Federal Reserve’s mid-year stress tests, the group announced plans to boost stockholder payouts by $21.5 billion, an increase of 14%."

Of note: Banks weren't supposed to deliver such strong earnings in 2019. Last year's earnings growth was measured against 2018 when the lower tax rate had already taken effect, unlike in 2018 when comparisons were to 2017 when tax rates were 35%.

Wall Street analysts are betting the banks can't do it three years in a row.

What they're saying: Analysis from Yardeni Research shows the average expectation is for a 0.4% decline in S&P 500 diversified banks’ 2020 revenue and only a 3.8% increase in earnings.

• Forecasts for the S&P 500 investment banking and brokerage industry are also weak, with calls for revenue to edge up by 1.6% and earnings to rise 4.5% this year.
• Earnings estimates for both banks and investment banks/brokerages have been revised downward in recent months.

Citi will announce today plans to use 0.7% of the $19.4 billion it made in profits last year to create an impact investing fund, Axios has learned.

Details: The $150 million fund — 3% of Citi's Q4 profits — "is the largest fund of its kind to be launched by a bank using its own capital," the bank said in a statement provided first to Axios.

• Citi says it will make equity investments in “double bottom line” private sector companies that the bank judges will have "a positive impact on society," with an "emphasis on women and minority entrepreneurs."

What it means: Double bottom line investments are those that focus on a company's fiscal profits and losses as well as its social impact.

Where it stands: Researchers have generally been dubious of such investments, with a recent study concluding that "donating effectively is usually better than Impact Investing."

President Trump plans to nominate two new Fed governors — former campaign adviser Judy Shelton and St. Louis Fed director of research Christopher Waller (AP)

China's fourth quarter GDP growth was 6.0% year over year, matching expectations and putting 2019 GDP at 6.1%.

• Separate surveys also showed Chinese industrial production rose 6.9% in December, beating consensus estimates for 5.6% growth, after a 6.2% increase the previous month. Retail sales rose 8% vs. a consensus estimate of 7.9%. (SCMP)

New European trade commissioner Phil Hogan threatened to bring the U.S.-China trade deal to the WTO as a possible violation of global trading rules. (N.Y. Times)

The Treasury Department will begin selling 20-year bonds at some point during the first half of the year, rather than 50- or 100-year bonds. (Treasury)

Outstanding student loan balances have tripled since 2006 to more than $1.6 trillion, and annual repayment rates have been just 3%. Only 51% of borrowers who took out loans from 2010–12 have made any progress paying down their debt. (CNBC)

Bullish stock investors got just about everything they could ask for on Thursday, as the market rose to fresh all-time highs following the signing of the phase one U.S.-China trade deal Wednesday.

Quick take: Morgan Stanley became the latest U.S. bank to report earnings that trampled Wall Street expectations, rising 46% to $1.20 a share adjusted, with revenue up 27% to $10.86 billion. Its shares rose as much as 8% during trading.

• Tech stocks also popped with Alphabet joining Apple, Microsoft and Saudi Aramco as the only companies in the world with a $1 trillion valuation.

What else: U.S. data were strong, as retail sales met expectations for the headline number and topped economists predictions for sales excluding autos and in the control group reading.

• The Philadelphia Fed's business index massively exceeded expectations, ringing in at 17, its highest in eight months and well above expectations of 2.8 and December's 2.4 reading.
• Initial jobless claims came in stronger than expected with just 204,000 Americans filing for unemployment benefits, well below estimates of 218,000.

To top it off: The vote on the new NAFTA agreement, dubbed USMCA, passed the Senate by a 90-10 total, relieving lingering worries businesses may have had about its passage.

Commodity prices have sagged to start the year, even after the signing of the U.S.-China phase one trade deal, which should see billions more agriculture and manufacturing purchases by China in the next two years.

• But sugar and cocoa prices are surging, thanks to dwindling supply and Africa's "chocolate OPEC."

What's happening: The world is experiencing a deficit of sugar with a 1.9 million-ton shortage for the 2019–20 year, which follows a surplus of 2.55 million tons in 2018–19, Reuters reported in November.

• Major sugar producers like India and Brazil have shifted away from sugar production as prices have fallen, with Brazilian farmers moving to ethanol, Reuters said.
• U.S. production also is expected to fall this year, the USDA warned, dropping by about 600,000 short tons from its earlier forecast.

On the cocoa front, buyers have raised their minimum price paid per metric ton from about $2,124 to $2,600 after Ghana and Cote d'Ivoire threatened to suspend sales of cocoa beans for next year's season.

• The two countries have formed a syndicate similar to the oil cartel OPEC, in an effort to improve the livelihoods of cocoa farmers in their respective countries.
• Ghana and Cote d'Ivoire produce about two-thirds of the world's cocoa.