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JPMorgan to kick off US earnings season

US earnings season is upon us once more, where publicly-listed companies reveal to markets how they’ve performed in the second quarter of 2022.

These backward-looking financial results dictate to fundamental investors how they ought to value a company’s stock for the quarters and years ahead. Investors also take careful note of the company’s outlook, along with its potential challenges and tailwinds ahead, which is conveyed by C-suite officials (CEOs, CFOs, etc.). Such an outlook is then typically reflected in its share price.

The quarterly US earnings season traditionally kicks off with Wall Street giant, JPMorgan.

 

Who/What is JPMorgan?

JPMorgan is the largest bank in the United States, with a market cap of US$328.7 billion (at the time of writing), and its total assets are just below US$ 4 trillion.

Being a banking titan, its earnings can be used as a barometer of how the US economy is faring overall.

 

What to look out for?

  1. Here are the market forecasts for some top-line items due out of JPMorgan’s second quarter earnings that’s set to be released before US markets open today, at 7:00AM New York time:
    • Revenue: $32 billion
    • Earnings per share: $2.88
    • Net income: $8.548
       
  2. Additionally, shareholders will want to find out whether the revenue that the bank garnered from trading activities can provide JPMorgan with an earnings boost.
    Recall the highly volatile nature of global financial markets last quarter.
    Higher volatility typically leads to more trading activities, which should mean more fees for JPMorgan.

    This trading revenue boost is important to help offset the expected decline in investment banking activities. The fears that played out across global markets last quarter likely crimped the fees that JPMorgan garnered from investment banking, given the lack of appetite to make deals amid souring market sentiment.
     
  3. The Fed rate hikes that began since March could offer yet another boost to JPMorgan’s net interest income (the difference between what JPMorgan pays out as interest on clients deposits, versus what the bank gets from interest on loans).

 

And perhaps of greater significance for the broader US stock market …

JPMorgan CEO Jamie Dimon’s latest commentary on the US economic outlook could also affect overall risk sentiment. Note that markets are forward-looking in nature, leaving investors and traders the tricky task of reflecting future risks in today’s prices.

If Dimon later today were to reiterate his warnings over an economic “hurricane”, as he had said just last month, that could further sour the mood for US stocks as a whole.

And such warnings may not have to be verbally conveyed during the earnings release.

Signs that JPMorgan is growing more wary over the US economy could be derived from the lowering of its loan growth targets, or by stashing away more funds as loan-loss provisions (in case the US economic woes end up with JPMorgan’s clients being unable to service their loans).

 

How does JPMorgan’s stock typically react on earnings day?

This stock typically drops on earnings day, having done so for the past seven consecutive releases despite a host of positive earnings surprises since Q1 2020, at the onset of the pandemic.

Across its past 7 earnings, JPMorgan’s shares have posted an average drop of 2.68% for the session immediately after its financial results are released.

For today (Thursday, July 14th), markets are expecting the stock to move about 3.5%, either upwards or downwards.

 

Looking at the chart …

This stock has been stuck firmly in a downtrend, capped by its 50-day simple moving average (SMA) and more recently by its 15-day counterpart, amid fears that the ongoing Fed rate hikes could ultimately lead the world’s largest economic into a recession by 2023.

This stock has fallen by nearly 30% so far this year, outpacing the S&P 500’s 20% year-to-date drop.

JPMorgan has also lost a third of its value (down 34.85%) from its highest-ever closing price posted on October 22nd, and is trading around its lowest levels since November 2020.

More woeful news out of JPMorgan today may result in further declines for the stock.

A solid close below the recent cycle low of $109.29 could see bears testing support around $108 where its lower downtrend line rests. Beyond that, stronger support should arrive around the $105 region, which was a key resistance level amid the height of the pandemic (March – November 2020).

On the flip side, any positive upside surprises are set to be limited by the 15- and 50-day SMAs at $114 and $120 respectively.

Overall, it’s hard to see how JPMorgan can break out of its current downtrend this week, in light of the swirling macro woes, along with this stock’s earlier-mentioned propensity for declines on earnings day.

JPMorgan to kick off US earnings season

 

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