JP Morgan Stock Down 5% Today – Time to Buy JPM Stock?
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The price of JP Morgan stock is declining nearly 5% this morning following the release of the firm’s financial results covering the fourth quarter of 2021 as net revenues slightly missed Wall Street’s estimates for the period.
For the three months ended on 31 December, the American bank reported revenues of $29.3 billion, a figure equal to the one reported during the same period a year ago and 1% lower than the previous quarter. Wall Street’s consensus forecast for the bank’s revenues stood at $29.8 billion as per data from Capital IQ.
Corporate and investment banking (CIB) revenues experienced a significant 7% decline on a sequential basis. This decline was primarily caused by a more challenging trading environment. Back when the pandemic was raging, the bank was posting record gains in this particular segment amid favorable market conditions.
The decline in the CIB segment was partially offset by a better performance of the asset management and commercial lending units, which experienced a 16% and 6% increase compared to the same period a year ago respectively.
The bank reported that it released $1.6 billion of its provisions for credit losses citing “continued resilience in the macroeconomic environment”. However, JP Morgan’s net income still experienced a 2% year-on-year decline.
Finally, diluted earnings per share landed at $3.33 resulting in a 12% decline compared to a year ago while the bank’s return on equity declined 300 basis points at 16%. The market was expecting lower EPS of $3.01 as per data from Capital IQ.
What can be expected from this financial stock following the release of this quarterly report? In this article, I’ll be assessing the price action and fundamentals of JP Morgan stock to outline plausible scenarios for the future.
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JP Morgan Stock – Technical Analysis
The price of JP Morgan stock experienced a dramatic surge following news about the Pfizer (PFE) COVID-19 vaccine back in November 2020 as the market became more optimistic about the future of bank stocks as fears of a spike in defaults progressively subsided.
In 2021, JPM stock delivered gains of 24.4% – quite similar to the performance of the S&P 500 during that period – while the stock has surged more than 6% so far in January as the Federal Reserve has set forth the possibility of multiple interest rate hikes in 2022.
The chart above shows that JPM stock is on a mild uptrend but has remained confined within a predictable price channel thus far. This morning’s pre-market decline is breaking below the stock’s short-term moving averages but the price is still above the 200-day simple moving average.
Momentum indicators keep favoring a bullish outlook as the Relative Strength Index (RSI) is at 63 (bullish) and on an uptrend. Meanwhile, the MACD has moved to positive territory and remains above the signal line.
Moving forward, the 200-day SMA and the lower bound of the price channel shown in the chart remain the two most important areas of support for JPM stock.
JP Morgan Stock – Fundamental Analysis
One factor that could spook the market and that could lead to a sustained decline in JP Morgan stock is inflation. Last month, the US Consumer Price Index increased 7% compared to a year ago – this being the highest annualized increase since 1982.
Even though JP Morgan has multiple non-interest-dependent revenue streams, a scenario of record-low interest rates and elevated inflation is not positive for shareholders in terms of the real rates of returns that the bank can produce.
In this regard, a decline in the bank’s return on equity (ROE) this quarter is quite concerning. If the market identifies that profitability expressed as a percentage of the bank’s capital is heading down, chances are that capital could flow out of JPM stock and into companies that can produce better returns in an inflationary environment.
At yesterday’s closing price of $168.23 per share, JPM stock is being valued at 11 times the market’s forecasted earnings per share for 2022. The reason for this low multiple is that analysts expect a sizable decline in the firm’s profitability this year amid a potentially poorer performance of its market-facing business unit.
Meanwhile, even though the Federal Reserve may tighten its monetary policy and increase interest rates this year, the hike is not expected to be as significant as to move the needle of the bank’s consumer and corporate lending business to fully offset the decline of the market-facing segment.
With this in mind, the outlook for JP Morgan stock from a fundamental perspective is neutral as the current multiple seems to be adequately capturing the current situation of the bank in terms of its future financial performance.