JPMorgan stock remains vulnerable to the coronavirus’ impact on the global economy, and along with other banks faces further restrictions from the Federal Reserve on investor payouts. So is JPM stock worth buying right now?
JPMorgan Chase (JPM) is the biggest U.S. bank by market value. Markets see it as a window into U.S. consumer spending and corporate sentiment. When JPMorgan CEO Jamie Dimon offers his thoughts on the economy or broadcasts his complaints about regulations, investors listen.
That’s why it was notable when the bank warned this summer that it’s bracing for double-digit unemployment through the first half of next year. In September, the company trimmed its outlook for net interest income this year, to around $55 billion from $56 billion previously. But the bank in October said it saw more encouraging signs in the economy, even as it braced for more pain ahead.
Despite its reputation, however, JPMorgan stock has largely trailed the S&P 500 since 1986. More immediate concerns, such as the coronavirus’ toll on daily life, have sent investors fleeing from bank stocks. Here’s a breakdown of the JPM stock chart and financials.
JPM Stock Fundamental Analysis
Earnings growth is a key characteristic of top stocks. JPMorgan earnings per share have enjoyed double-digit gains for the past eight quarters. That all came to a halt in April, when the bank’s first-quarter earnings per share plunged 71%.
In the second quarter, they fell 51%, as a massive $9.3 billion provision for credit losses offset a surge in trading revenue.
In the third quarter, however, earnings rose 9%, helped by a boost in trading revenue.
JPMorgan and its large-bank peers have set aside billions this year to cover souring loans, as the pandemic’s shutdown of the economy threatens people’s ability to keep up with bill payments. But the company’s reserves in the third quarter were much smaller.
Still, it said expected a “meaningful increase” in charge-offs — or debt considered unlikely to be collected — in the second half of the year, as stimulus aid and other payment relief measures wear off. Talks for a a second round of stimulus aid remain up in the air.
Analysts expect JPMorgan earnings to slide 31% in 2020 overall, after climbing 19% in 2019.
The Federal Reserve, in an effort to hold the economy together, has kept interest rates near zero. But that has hurt the profit banks take in when they collect interest on loans.
The Fed has also placed other restrictions on the banks. On Sept. 30, it extended through the fourth quarter its limits on large banks’ dividend payments and its suspension on share buybacks. In June, the Fed ordered banks to cap dividend payments and stop buybacks for the third quarter — moves it said would help keep banks financially sound through the pandemic.
“The capital positions of large banks have remained strong during the third quarter while such restrictions were in place,” the Fed said in a statement.
JPMorgan Stock Technical Analysis
JPMorgan stock rallied through late May and early June, as hopes grew for an economic rebound. But rising coronavirus cases, arriving in conjunction with the reopening of states’ economies, forced investors into retreat again.
JPM stock is sitting above its 50-day line and is trying to hold support at its 200-day line. While the stock is above its March low, its relative strength line has rattled lower since June. The RS line tracks a stock’s performance vs. the S&P 500 index.
Longer term, the RS line shows that JPM stock has largely moved in line with the market going back to 1998, or even 1986. That’s also a problem for banking giants such as Citigroup (C), Goldman Sachs (GS) and Bank of America (BAC). Banks tend to prosper along with the economy. But if the economy is doing well, so will the stock market generally.
JPMorgan stock and its rivals can have periods of outperformance, as they did near the end of 2019. JPM stock, Goldman Sachs, Bank of America and others outperformed the market from April 2016 to March 2017, with most of those gains following President Donald Trump’s surprise election victory. Trump’s push for corporate tax cuts and bank deregulation fueled financial stocks.
But long-term outperformance has been ephemeral for JPM stock, even though it has generally outperformed its big peers.
Put another way, if you had bought the SPDR S&P 500 ETF (SPY) back in 1998, you’d have the same or better returns with far less risk.
JPM Stock Vs. Other Bank Stocks
JPMorgan stock has a not-great 46 Composite Rating, on a 1-99 scale with 99 tops. Its EPS Rating, according to MarketSmith, stands at 73. IBD encourages investors to focus on stocks with Composite Ratings of 90 or higher.
Morgan Stanley (MS) has a Composite Rating of 78, the highest of the big banks. Its EPS Rating is 97.
Citigroup stock has a 7 Composite Rating and a 44 EPS Rating. Among the other big banks, Bank of America has a 29 Composite Rating and an EPS Rating of 63. Wells Fargo has a worst-possible 1 Composite Rating and a 16 EPS Rating.
Goldman Sachs stock has a Composite Rating of 61 and an EPS Rating of 92. Goldman Sachs was in a consolidation pattern.
But JPMorgan is also rolling out more mobile payment functions to mirror the fintech upstarts. And in October, JPMorgan launch its mobile payment service QuickAccept.
QuickAccept lets merchants process card payments within minutes through a mobile app or contactless card reader. Merchants will be able to see sales hit their Chase business accounts on the same day, free of charge. In contrast, Square charges 1.5% to make instant transfers and sales appear the following day or later.
JPM Stock Is Not A Buy
JPMorgan has a market value of around $316 billion, according to MarketSmith. Its business is a one-stop financial shop for Wall Street and Main Street. Bigger double-digit earnings gains held up in 2019. But how much the coronavirus might damage the economy, and its earnings, is unknown.
Shares are not in a buy zone and not forming a base. JPMorgan stock has also been lagging the S&P 500 index for the past couple of years. Longer term, JPM stock, like other big banks, has a poor record when it comes to beating the broader market for long stretches.
JPMorgan earnings will also continue to be under pressure from the Fed’s near-zero rates. The pandemic will weigh on retail lending as millions remain out of work. And while trading revenue saw a spike in Q3, it has been volatile in recent years and not a steady growth driver.
Bottom line: JPM stock is not a buy right now.
YOU MIGHT ALSO LIKE:
The post Is The Biggest Bank Stock By Market Cap A Buy Now? appeared first on Investor’s Business Daily.