JP Morgan Chase Earnings Impress, Market Unimpressed

JP Morgan Chase

JP Morgan Chase just announced their quarterly earnings, and they beat estimates by a handy amount. This usually means a stock’s price goes up, not down, but not always.

Many stock market participants and observers eagerly await quarterly earnings reports and company guidance, and depending on how these reports come out, this can affect the price of a stock pretty significantly at times.

It’s not just the earnings that people look at, it’s how these earnings stack up against the consensus on the street, where beating these projections is good and falling short is seen as negative.

There’s a lot more that goes on with a stock’s price even day to day than just quarterly reports though, but these things can and often do move stock prices all by themselves at times.

A lot of people will say that the market has priced in a certain earnings result, but what actually happens is that this news does influence the price of stocks by a certain amount for a short period of time, along with whatever else may be going on then, and the next day we move on to the other factors that influence its price.

For example, we can imagine a company that had announced their earnings projections for last quarter a couple of months ago, and this had whatever impact it had on the stock on that day. Since then, it has gone through some real ups and downs that obviously had nothing to do with this since the situation hasn’t changed, where it may have taken a hit in May for instance and rallied in June as many stocks did.

If what we mean by pricing in here is having differences in these expectations influence a stock’s price on the day that this news is announced, this would be true, although we really need to limit ourselves to this.

What we really need to avoid is having these earnings projections and announcements be given more weight than they deserve, and in some cases, much more weight. There are lots of people that only look at this, but this is at best only part of the overall story and it may not even be a very meaningful one depending on the impact of the news involved and whatever else is going on.

It’s Really All About the Mood of Traders

The best way to understand how all this comes together is to see earnings and other business results and projections as candidates to affect people’s mood about a stock, or in the aggregate, their mood about the market. Earnings can affect their mood and often do, along with a lot of other things.

There is, therefore, no real calculations that can be made with any accuracy as far as what a certain business result will do for a stock’s price, as this all depends on a lot of things. Perhaps the market is on a run with a lot of people buying stocks, or perhaps a lot of people are anxious and selling more, and this involves not only the mood that the market is in with regard to the company but their overall mood toward stocks in general.

We know that the overall market is in a pretty good mood given that we’re around all-time highs. When we see this combined with an extremely solid stock such as JP Morgan Chase announcing that it beat expectations by quite a bit, this should put people in a better mood toward the bank, but not always.

A company can have record earnings in fact and look fantastic from a fundamental perspective but can see their stock drop quite a bit over this time, and we saw this with bank stocks generally in 2018. JP Morgan Chase stock is up 17% year to date, but still hasn’t made it back up to where it was in March 2018, as well as the bank has done over this time business wise, like increasing its year over year quarterly earnings by 23%.

The stock has therefore lagged the market, but a lot of people that hold the stock aren’t too concerned, the investors that is. Bank stocks aren’t as exciting as stocks in some sectors are, but they also tend to pay nice dividends, and appeal to a lot of investors who are on the more conservative side and are looking for solid investments that can be held with relative comfort over the longer periods that they are investing in.

These are investors that don’t care about a little loss that this stock may go through such as the dip we saw in May, or the one last year for that matter. It will take a lot more than the bank beating or missing earnings expectations by modest amounts to get them to bail.

Investors don’t really move stock prices much though because they are holding their stock for a long time and therefore don’t participate very much in the movement of a stock normally. The people who move stock prices the most are actually traders, and there are some big ones out there, and these sorts of things certainly matter to them.

As investors, we don’t want to get too bent out of shape by whatever these traders do, including JP Morgan Chase themselves, ironically enough, who do a huge amount of trading, although there may come a time where the mood of traders can move stock prices a lot, and we may even get to the point where investors start piling on more when we see prices really move, such as with big rallies where people will break their piggy banks and with selloffs where they may get too nervous and bail.

If you’re a trader, you have to watch things closely, and anything that moves markets will be in your view. More than anything, traders watch the movement itself and act in accordance to that, and this is the biggest reason why momentum plays such a big role in stock trends, even ones that are fairly lengthy.

If we ever wonder that the impact of order flow from traders can amount to, we just have to look at the flash crash of 2010, which saw some stocks trade for as little as a penny a share for a brief time by only a tiny percentage of the stocks’ overall values. The actual trading float may be tiny, but it’s the part of the market capitalization that is in motion, and whatever price changes that occur are settled by these shares in motion exclusively.

A lot of people don’t really understand these forces and these are the ones that will try to convince you that a company’s earnings are the only thing, when the forces that really move stock prices may not be that concerned with such things and this may play a rather small part in the picture, depending on just how robust or how scary things might get with them.

There are various time frames involved with all of this though, and some may only care about seconds from now, with others looking perhaps a year or two down the road, and everything in between. The expectation is the reality here, completely, and therefore we need to pay attention to these changing expectations more than anything if we seek to time our positions in any way.

This is why charts are so important because charts measure this activity, these changing perceptions, on whatever scale you choose. Charts not only tell the story of what has happened, they also incorporate our expectations of the future, as the minor downward movement that JP Morgan Chase’s earnings report is representative of.

When we look well beyond the shorter time frames of trading, this is where a company’s business outlook comes into play, where we step back and look at the bigger picture to see how nice it may look. We still need the favor of the mood of the market and we should still be paying close enough attention to this that is appropriate for our time frames, but success does breed success and this outlook therefore needs to be desirable as well for a stock to make the cut.

JP Morgan Chase Just Looks Fabulous Overall

Last year, bank stocks underperformed because people were especially worried about how interest rate hikes would affect them. While we may think that this sort of thing helps banks, it generally doesn’t because while a bank may make more per dollar loaned out, with lower rates, they can beat this by way of the additional volume of loans we see.

The word is that the market is concerned about how a rate cut might affect banks. While it may not be reasonable to think that both rate hikes and rate cuts hurt banks, people’s perceptions aren’t subject to any standard of reasonableness, as they are what they are.

If rate cuts help business in general by allowing them to borrow more, it would stand to reason that this would also help banks, especially since rate cuts increase the money supply and that means bigger profits for banks generally, not just by way of increasing what they make on lending out money, but on their investment side as well.

Everyone is expecting a rate cut the next meeting, and while Chairman Powell definitely is leaning that way, we’ll have to see where the rest of the committee stands on this. It does seem pretty likely we’ll get the cut this time though given Powell’s recent comments and his perceived need to head off the conditions he sees deteriorating since the last meeting.

JP Morgan Chase reported quarterly earnings of $2.82 a share, up from $2.29 year over year and well in excess of the consensus estimate of $2.50. When we put this together with the expectation of a rate cut soon, boosting business in general to some degree anyway, we should be seeing some sort of rally.

The bank has even raised their dividend payout from 80 cents a share to 90, a move that makes the investors happy and more likely to hang on to their stock. Any time a company increases its dividend, that a bullish thing no matter whether you care about dividends or not, as companies only do this if they are experiencing more success.

JP Morgan Chase is also planning to buy back almost $30 billion worth of its shares, or 8% of their market cap, over the next year. Among the things we would care about the most over the next year, this is the biggest, as that’s a buyback of enormous size, one that affects stock prices significantly.

This stock is simply a beautiful thing from a fundamental standpoint, and just in case that doesn’t do the trick in driving their stock price higher, they are going to be doing their part to help this along by buying all this stock.

We don’t want to let the small selloff that these results produced influence us, as this stock has so much going for them that a fairly minor amount of action to the downside from those who are choosing to pay a little less for this stock isn’t going to matter much.

We’re almost all the way back to where we started last Friday though, only down by 18 cents at the close Tuesday, and the entire move down didn’t even amount to all that much anyway, about a single percent.

If you’re the sort that likes strong companies that have good long-term prospects, JP Morgan Chase fits the bill very well indeed. They are the largest bank in the United States and show no signs of slowing down. Even if you are just out to invest for a year, this stock’s coming year looks particularly promising. No matter how you feel about their business projections, there’s nothing like a massive buy-back strategy to make a stock’s price happy.



Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.