JPMorgan Chase (NYSE:JPM) delivered another solid earnings report on Oct. 13. But you wouldn’t know it by looking at JPMorgan stock. Or would you? There’s a pattern developing when the biggest of the big banks reports earnings. It goes like this. JPMorgan beats and its stock goes down. And sure enough, the bank’s stock was down over 1.5% in late-day trading.
JPMorgan reported revenue of $29.15 billion. While this easily beat consensus estimates it was lower on both a sequential and year-over-year (YOY) basis.
Earnings per share (EPS) were way up. In fact, the $2.92 EPS the bank delivered was 73 cents better than expectations. The most significant reason for this was the bank’s decision to hold back a smaller-than-expected $611 million in additional funds to cover loan losses. What could be dampening investor enthusiasm is that the company still has credit reserves totaling nearly $19.5 billion. That’s up almost 400% YOY.
So what do we take away from JPMorgan’s performance?
It’s Still About the Economy
Election cycles tend to wander far afield. But in the end, the economy tends to find a place at the voters kitchen table. I’m not trying to make a correlation between stock performance and the overall economy. Investors tend to do what they do regardless of other factors. But it’s clear the market is expecting more stimulus. Two weeks ago it looked as if talks of a stimulus package were dead.
But this is 2020 so that was so two weeks ago. Now, it appears that the only question our fearless leaders are asking is how large will the package be. If President Donald Trump has his way, it will be larger than the $2.2 billion requested by the Democrats. Which means the Democrats will now be looking to trump Trump.
Either way, by adding a smaller-than-expected amount to its credit reserves, JPMorgan looks to be expressing confidence in the broad economic recovery. At the same time, the company is clearly betting on more stimulus. The only question appears to be when that will arrive.
Election May Not Be As Contested As Feared
That brings me to my second point. It wasn’t that long ago when we were hearing about a contested election that could last into 2021. Now it seems that there is more certainty (founded or not) that there will be a decisive winner on election night. And if a winner is not declared on election night, then there will be a winner within days, not weeks.
Now I’m far too cynical to believe that banks in general, and JPMorgan in particular, give a whit about who wins the election. They just want a timely result. Is that too much to ask? Apparently it’s not. I’m still too cynical to discount the possibility of a metaphorical food fight over mail-in ballots. However when JPMorgan seems to be saying relax, there may be something there.
Novel Coronavirus Continues to Add a Risk Premium
If JPMorgan’s earnings are any indication, we’ll be hearing the “range of outcomes” mantra for another earnings season. Chief Executive Officer Jamie Dimon made it clear to investors that the bank’s performance might be a one-off. No wonder JPMorgan stock took a dip.
However Dimon’s cautious outlook continues to remind investors why we should all be rooting hard for the biotech companies that are working on vaccines and/or therapeutic treatments. The economic recovery is encouraging, but it’s still an uneven recovery. And it will continue to be until the world can return to normal activity patterns.
JPMorgan Stock Looks Like a Buy
JPMorgan stock is down 27% for the year. That’s slightly better than the sector’s performance (down 29%). But it’s a far cry from the broad market, which is up 9%. After this earnings report that looks like a gap that is ready to close.
There are still many unknowns. But it does appear that we’re getting closer to checking off a few more boxes. And unless the market gets more nasty surprises, JPMorgan will be sitting on a pile of cash that it may decide to put into increasing its dividend. And even if it doesn’t the bank’s 3.5% dividend yield looks very safe.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.