JPMorgan Q2 preview: Where next for JPM stock?

Canary Wharf London cityscape at night with HSBC building
Josh Warner
By :  ,  Market Analyst

When will JPMorgan release Q2 earnings?

JPMorgan is scheduled to publish second quarter earnings for 2022 before US markets open on Thursday July 14.

The bank will hold a conference call at 0830 ET on the same day.

 

JPMorgan Q2 earnings consensus

Wall Street forecasts JPMorgan will report a 2.3% year-on-year rise in managed revenue to $32.1 billion in the second quarter and that adjusted EPS will drop 23.3% from last year to $2.90.

 

JPMorgan Q2 earnings preview

The financial sector is expected to experience the toughest quarter within the S&P 500 this earnings season, with forecasts from FactSet suggesting we will see, on average, over a 22% drop in profits compared to a milder 4.1% drop across the entire index.

The primary reason for this is because of the tough comparatives from last year. For example, JPMorgan’s EPS soared 174% in the second quarter of 2021 after being bolstered by the release of credit reserves that had been set aside during the uncertain times at the height of the pandemic, providing tough figures in the first half – although these will ease in the second.

The picture is very different a year later. The boom in M&A deals and IPOs seen last year has ground to a halt as businesses become more cautious, and the outlook for the likes of mortgages and fees looks at risk given the uncertain environment. As a result, reserves are starting to build again as markets brace for a downturn later this year or possibly in 2023. Analysts believe the loan loss provision will come in around $1 billion this quarter. Plus, costs are continuing to rise at a rapid rate, with analysts forecasting total operating expenses will jump to $19.2 billion in the quarter from just $17.7 billion the year before.

With that in mind, JPMorgan was told by the Federal Reserve late last month that it needs to increase its capital buffers before the start of October following the latest round of stress tests that evaluate how strong banks would be in a worst-case scenario. The central bank said JPMorgan needs to raise its stress capital buffer to 4.0% from the current 3.2% in place, while its CET1 capital ratio is rising to 12.0% from 11.2%. JPMorgan’s CET1 ratio stood at 11.9% at the end of the first quarter and is forecast to come in at 12% in the second before growing to 12.2% in the third.

Investors will be keen to find out how JPMorgan plans to increase its buffers above the new requirements, and what sort of impact this will have on shareholder returns.

Most major US banks were given the all clear and told their existing buffers were sufficient to weather a storm, leaving JPMorgan – as well as Bank of America and Citigroup – among the small group that were told to put more money aside. The fear for investors is that this swallows up more capital that could otherwise be returned to shareholders.

JPMorgan has already paid a $1 dividend for the second quarter and said this will remain flat in the third given it needs to prioritise strengthening its buffer. JPMorgan said it plans to continue delivering sustainable dividend growth but payout growth may be held back this year. Meanwhile, JPMorgan already has a $30 billion share buyback programme live, although this has no end date and therefore it could apply the brakes if need be.

 

Where next for JPM stock?

JPMorgan shares have lost almost one-third of their value since mid-January as the economic outlook has deteriorated.

The stock closed at a 20-month low earlier this month of $110.77, which is currently holding as an initial floor. This must hold in order to avoid opening the door to $105, which is a more significant level of resistance as shares could slide below $100 if it is breached.

Notably, trading volumes have seen a notable drop over the last 10-days, suggesting the downward pressure could finally be easing. The fact the stock has found lower ground while the RSI has risen signals we could see a bullish reversal. If the stock can climb higher then it needs to recapture the 50-day moving average at $120, having only been able to briefly surpass this level since the start of 2022. From there, the peak of both May and June at $132.80 comes onto the radar. The 28 brokers that cover JPMorgan are bullish on the company’s prospects and believe the selloff this year has been overdone, with an average Buy rating and target price of $145 – some 29% above the current share price and in-line with the 200-day moving average.

JPMorgan shares have rebounded since hitting a 20-month low

 

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