JPMorgan Q4 preview: Where next for JPM stock?

JPMorgan outperformed its peers in 2021 but will the stock be able to keep up the momentum when it kicks-off the earnings season for US banks this week?

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When will JPMorgan release Q4 earnings?

JPMorgan Chase & Co will publish fourth quarter earnings before markets open on Friday January 14.


JPMorgan Q4 earnings preview: what to expect from the results

A consensus compiled by Bloomberg shows analysts are expecting managed revenue to come in at $30.0 billion compared to $30.2 billion the year before. Net income is forecast to drop to $9.4 billion from $12.2 billion the year before, with diluted EPS expected to fall to $2.99 from $3.79.

Importantly, JPMorgan has beaten Wall Street expectations in terms of both revenue and earnings in seven out of the last eight quarters.

The expected decline in earnings comes despite a high likelihood that we will see JPMorgan and other banks continue to unwind the reserves set aside to cover potentially bad loans during the pandemic. The Omicron variant is still making the world nervous, but governments seem reasonably comfortable for now that they don’t need to return to the days of harsh restrictions and lockdowns. Notably, JPMorgan’s reserves for potential credit losses sat at $14.3 billion at the end of the last quarter, down from its peak last year of $34.3 billion but still considerably above the $14.3 billion it had hoarded away before the pandemic hit.

Still, any release will not be enough to counter the anticipated fall in profitability this quarter. The bank’s net interest margin, the key profitability measure within the banking industry, is forecast to tighten to just 1.66% in the fourth quarter from 1.80% the year before.

Plus, return on equity is forecast to slump to just 13.9% in the fourth quarter. That would be the worst performance in six quarters and down from the 18% delivered in the last two quarters and from 19% the year before. Diving deeper into the bank’s different segments, below is an outline of what return on equity analysts are expecting form each of JPMorgan’s divisions and how it fares from the previous quarter:

  • Consumer & Community Banking: 31.6% (vs 34%)
  • Corporate & Investment Banking: 19.5% (vs 26%)
  • Commercial Banking: 18.2% (vs 22%)
  • Asset & Wealth Management: 30.0% (vs 33%)

One of the reasons profitability looks set to be squeezed in the fourth quarter is rising costs. CFO Jeremy Barnum warned costs were expected to continue rising into 2022. Some of this is down to higher pay for performance-related positions, such as in the investment banking division which has benefited from a boom in dealmaking within the M&A sector over the past year, but JPMorgan is also having to ramp-up investment to fend-off new technologically-savvy rivals. CEO Jamie Dimon has said JPMorgan will ‘spend whatever we have to spend to compete with all these folks in our space’.

At the other end, eyes will also be on loans. Demand has remained subdued considering businesses have raised large sums since the start of the pandemic and consumers have been aided by government stimulus cheques, but average loans grew 5% in the last quarter and management said it ‘may be poised to begin more robust growth across the company’ going forward. However, that was tempered by Dimon today in an interview with Fox when he warned consumer loan growth will take six to nine months to return to normal, although business loan growth should recover at a swifter pace.

Investment banking and trading is likely to remain strong for JPMorgan in the quarter considering 2021 was a bumper year for M&A activity and IPOs, while the current state of interest rates and continued volatility in markets should aide trading. The performance from cards could continue to struggle after JPMorgan warned it was earning less from US credit card users and reported a sharp drop in card income in the last quarter as it ramped-up marketing in a competitive market.

We can also expect some questions to be fired at Dimon in the conference call after he told CNBC yesterday that the rapid rise in inflation could force the Federal Reserve to raise short-term interest rates more than four times this year. ‘It's possible that inflation is worse than people think. I, personally, would be surprised if it's just four increases this year. Four would be very easy for the economy to absorb,’ he said. With just three rate hikes currently pencilled in by markets this year, is Dimon more bullish that the Fed can help boost profitability in 2022?

Although there are several headwinds on the horizon and earnings could disappoint compared to the rest of 2021, the fourth quarter should round off a record year for JPMorgan and investors will be keen to find out what the sentiment is now we have entered 2022.


Where next for JPM stock?

JPMorgan shares rose over 24% in 2021 and outperformed the 12% gain booked by the Dow Jones US Bank Index.

JPMorgan shares have trended higher over the past three weeks and are currently trading at their highest level since early November. If the current uptrend persists, a view supported by a bullish RSI and an uptick in volumes since the start of 2022, then the stock is on course to climb toward the all-time high of $172.96 hit back in late October.

Any disappointment in earnings or outlook could send shares down to the $163 mark, in-line with both the 50-day and 100-day sma. That would also close the gap created when the stock jumped higher on January 4, just like it was filled when it gapped lower in the months of November, September, July and June.

Notably, the shorter-term 50-day sma is on the cusp of potentially crossing the longer-term 100-day sma, which could lead to a bearish signal emerging. A move below those two moving averages opens the door to the 200-day sma at $160.

Where next for JPM stock?

(Source: Eikon) 


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