Dow component and financial giant JPMorgan Chase and Co. (JPM) beat Q2 2020 profit estimates by $0.15 last week, reporting $1.43 earnings-per-share on $33.8 billion in revenues. Revenues rose a healthy 14.7% year-over-year but provisions for credit losses lifted to $10.5 billion, offsetting otherwise strong metrics during a period in which many business segments benefited from post-shutdown reopening efforts.
JPMorgan Chase Rising Credit Losses
U.S. banks have performed poorly so far in 2020, with the S&P Banks Select Industry Index dropping more than 34%, despite bouncing off a multiyear low in March. Twin headwinds of plummeting interest rates and slumping business activity have underpinned this weak performance, which may continue well into 2021. The recent surge in U.S. COVID-19 cases has added a third roadblock, renewing fears of a long and deep recession.
JP Morgan Chase CEO Jamie Dimon stressed the challenging environment in the earnings release, admitting “we still face much uncertainty regarding the future path of the economy. However, we are prepared for all eventualities as our fortress balance sheet allows us to remain a port in the storm. We ended the quarter with massive loss-absorbing capacity, over $34 billion of credit reserves and total liquidity resources of $1.5 trillion, on top of $191 billion of CET1 capital, with significant earnings power that would allow us to absorb even more credit reserves.”
Wall Street And Technical Outlook
Wall Street consensus currently rates the stock as a ‘Moderate Buy’, underpinned by 9 ‘Buy’ and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions at this time. This optimism seems unwarranted, given the banking sector’s laggard behavior this year, suggesting that downgrades may increase in coming months. Price targets range from a low of $97 to a street high $122 while the stock is now trading just $3 above the low target.
JP Morgan Chase has outperformed its peers since 2009, breaking out in October 2019 and posting an all-time high above 140 at the start of 2020. It then sold off with world markets, dropping to a 3-year low in the 70s in March. Price action has been crisscrossing the 200-week moving average for almost 5 months now, in a neutral position that’s unlikely to stoke long-term buying interest. Ominously, accumulation has been trending lower since the first quarter of 2018, increasing risk that committed sellers will eventually break the March low.
This article was originally posted on FX Empire
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