JPMorgan Tops Estimates, Will the Market Follow?

Key Points

• JPMorgan Chase & Co. topped estimates on a surprise gain in NII. 
• The news is good for the bank but not the rest of the economy, which is paying higher interest rates. 
• The stock is moving up but gains may be capped unless the analysts change their tune. 

JPMorgan Chase & Co. NYSE: JPM blew past the Marketbeat.com consensus estimates, which is good news for the bank. Its core business is performing strongly in the high-interest rate environment, but this may not be good news for the broader market. A surprise gain in NII underpins JPMorgan’s results, which depend on credit spreads and not necessarily an increase in business. The business trends are positive and help growth but not to the same degree.

The takeaway for investors is that JPMorgan Chase & Co stock might move higher, but that doesn’t mean the S&P 500 NYSEARCA: SPY will follow. There are still numerous headwinds facing businesses and consumers; the Fed may pause hiking rates, but there is little reason to expect interest rates to cool off soon. 

“The U.S. economy continues to be on generally healthy footings —consumers are still spending and have strong balance sheets, and businesses are in good shape,” said CEO Jamie Dimon. “However, the storm clouds we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks.”

JPMorgan Chase Rises On Results, Guidance

JPMorgan Chase reported a solid quarter with at least steady business in all segments. The company reported $38.3 billion in net revenue, up 24.8% compared to last year, beating the consensus by 700 basis points. The strength is driven mainly by NII, which rose 49% compared to last year to hit $20.7 billion and exceeded the analysts' consensus by 1000 basis points. Community & Consumer Banking and Asset Management grew 4% segmentally, while Corporate came in flat. Commercial banking, which includes the bulk of loans, rose by 46%. Regarding loans and deposits, loan growth was flat YOY, and deposits rose by 1.1%. 

Margins were healthy despite an increase in credit and non-credit expenses. The non-credit expenses increase is due to headcount and wages, while credit expenses are due to higher rates. The takeaway is that top-line strength driven by NII leveraged the operating margin to GAAP EPS of $4.10. That’s up 55% compared to last year and $0.69 better than expected.

The result is an improvement in cash position and the ability to pay dividends and buy back shares. Notably, the provision for credit loss offset the chargeoffs and left the balance at $2.83 billion or flat sequentially and up nearly 95% compared to last year. That’s a sign of expected trouble but one that didn’t worsen since the last report. 

The guidance is favorable as well. The company expects NII of $81 billion for the year, which tops the consensus by $8 billion. That’s enough to get the full-year results well above the consensus and the analysts raising their targets. The question is whether they will increase their price targets because those were trending lower ahead of the report. 

The Analysts May Cap Gains In JPM Morgan Stock 

Marketbeat’s analyst tracking tools haven’t picked up any new commentary yet, but the trend ahead of the report isn’t overly optimistic. The sentiment of 17 analysts is up to Moderate Buy from Hold, but the price target is down compared to last year and trending sideways. At $148, it is 15% above the prerelease price but still below the critical $150 level.

This level is round-number resistance and a previous point of support that marks the top of a trading range. If the market can get above that level, it may move higher; until then, this 3% yielding high-performance bank is stuck in a range and nearing resistance.