America’s biggest banks are gearing up for another round of quarterly earnings reports. JPMorgan Chase’s (NYSE:JPM) report is hotly anticipated as this event could be make-or-break for JPM stock.
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The big day is July 14, and some analysts on Wall Street are keeping their expectations muted, to put it politely. Perhaps they’re sick and tired of watching big-bank stocks flounder while other sectors, particularly tech, continue to record all-time highs.
However, as we shall see, not every Wall Street analyst is a perma-bear when it comes to JPM stock. Moreover, it’s entirely possible that the market punished the banking sector excessively. The news wasn’t all bad for banks during the first wave of the novel coronavirus.
A Closer Look at JPM Stock
The frustration that JPM stockholders are feeling is almost palpable. They’ve had to witness other economic sectors recover while JPM is still nowhere near its 52-week high price of $141.10.
A cruel head-fake in early June only added to that frustration. On June 8, JPM shares reached a short-term peak above $113, only to tumble back below $91 a month later.
Both the bulls and the bears will be watching the upcoming earnings report carefully. On that day, the trading volume will be heavier than usual and that should catalyze an outsized move in the stock price. Both $100 and $110 will be key areas to watch on that day and during the following trading sessions as both sides of the trade seek momentum and follow-through.
As I alluded to earlier, not every prominent analyst is bearish on JPMorgan Chase. For instance, Wolfe analyst Steven Chubak recently upgraded his rating on JPM to “outperform.”
With this upgrade, Chubak cited what he views as an improving outlook in the area of loans. Indeed, he’s making a fair point as the demand for bank loans, which cratered during the peak of the coronavirus crisis, should improve as the broader economy recovers.
Chubak even went so far as to opine that JPM shares have been “abandoned for no good reason.” That’s a great way of framing the stock-price rout, which reeks of marketplace overreaction.
Much of this is likely due to investors’ fears of a repeat of 2008. This was a time when banks like Lehman and Bear Stearns went belly-up. Perhaps they’re worried that if mega-lenders could tank the economy back then, they could do the same thing this time around.
This feeling of shell shock might be a factor in the analyst community’s estimate of a meager 2.5% increase in JPMorgan Chase’s revenues for the second quarter. Even beyond that, analysts are projecting a horrendous 58% decline in quarterly profits for JPMorgan Chase.
Don’t Get So Stressed
In all probability, the analyst community’s concerns are overblown. You might recall this fear reaching a tipping point recently. This occurred during the run-up to the Federal Reserve’s stress tests of the major U.S. banks.
Here’s what Federal Reserve Board Vice Chair Randal K. Quarles had to say after the conclusion of the much-feared stress tests:
“The banking system has been a source of strength during this crisis … and the results of our sensitivity analyses show that our banks can remain strong in the face of even the harshest shocks.”
In other words, while nothing’s perfect, the big banks will survive the coronavirus crisis. And this is not a repeat of 2008. Granted, the Fed’s good news came with a couple of restrictions:
“During the third quarter, no share repurchases will be permitted. … The Board is also capping dividend payments to the amount paid in the second quarter and is further limiting them to an amount based on recent earnings.”
This shouldn’t cause too much consternation during the upcoming earnings announcement. Keep in mind that the data will only concern what’s already taken place in the second quarter.
If anything, the Fed might actually be doing JPMorgan a favor. After all, a big dose of market worries can lead to a hefty earnings-time surprise. It could be a perfect setup as traders discover that the situation isn’t nearly as dire as it seems.
The Bottom Line
Chubak is 100% correct in his assessment that investors “abandoned” JPM stock “for no good reason.” They’ll probably come to appreciate JPMorgan Chase again soon. However, that might only happen after an earnings beat that powers the share price much higher.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
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