Wall Street sells JPM! Profits? Who Cares!

$JPMorgan Chase(JPM)$ 

A very strange phenomena happened on Fri, 12 April 2024.

US banking giant JP Morgan kick started Financial services sector companies’ Quarter earnings season.

Q1 2024 Earnings.

It posted profit & revenue that topped Wall Street estimates.

Credit costs and trading revenue came in better than expected.

Results, along with estimates from analysts surveyed by LSEG (Refinitiv):

- Earnings: $4.44 per share, vs. $4.11 expected. Exceeding by +8.03%.

- Revenue: $42.55 Billion, vs. $41.85 billion expected.

YoY Comparison.

Q1 2024 profit rose +6% to $13.42 billion or EPS of $4.44; boosted (of course) by its takeover of $First Republic Bank(FRC)$  during March 2023 banking debacle.

EPS would have been $4.63 per share (or $0.19 higher) if not for the $725 million “contributions” to FDIC as fees covering costs from the 3 US regional banks fallout.

Revenue climbed +8% to $42.55 billion, with JP Morgan generated more interest income due to higher rates and larger loan balances. 

The Fall !

Despite handing in a stellar report card, JPMorgan fell by -6.47% to end the week on $182.79 per share.

Overall for the week of Apr 8 - 12, the bank has lost -7.45% or -$14.72 per share.

Based on inference, the “bulk” of the fall happened on Friday.

Root Causes.

Based on all reports out there, below are the main reasons.

(1) Net Interest Income (NII). CEO Jamie Dimon has reported for 2024, the bank’s NII remains status quo at $90 billion (unchanged from previous forecast).

This fell short of investors’ expectations of $3 billion.

Piper Sandler, Analyst Scott Siefers echoed the same sentiments that “unchanged outlook” have disappointed investors.

(2) Interest rate jitters. With March 2024 inflation data coming in more “forceful” than estimated, there is a growing anxiety that the Fed may raise interest rate by another 25 basis point, instead of cutting.

This have dampened investors’ sentiments.

(3) Geopolitical tensions. Concerns about a potential tension escalation in the Middle East rattled investors, leading them to seek safer havens for their money. (see below) 

- US believes Iran could attack Israel as early as Sun, 14 Apr 2024.

- This is in retaliation over the killing of a senior officer in Iran's embassy in Damascus, last week.

- US has rushed additional military assets to protect Israel and American forces in the region.

- It has also re-positioned 2 Navy destroyers to the Eastern Mediterranean Sea.

- Iran sent a warning to the Biden administration (via Arab channels) that should US gets involved in the fight between Israel & Iran, US forces in the region will be attacked. (see above) 

My viewpoints: (mine & mine only)

- Of all the possible root causes presented, I think the most salient ones are (1) JPM 2024 Outlook and (2) Geopolitical tensions in Middle East.

- I think there is no need to elaborate on point #1. Wall Street has always been a “bully” threatening a company with a sell down if their FY forecast are not fantastic.

- You only need to look at Wall Street’s treatment of $Tesla Motors(TSLA)$  when it fall short on delivery or earnings.

- Its off with its head (Tesla)..

- "Peace” in the Middle East is hanging on by a thread, with the countries involved unwilling to bow down gracefully.

- Should the war bleed into Iran and US unwittingly get sucked into it, the US stock market will be shook to its core.

- This might not bode well for President Biden especially on the run up to November election.

- The coming 2 weeks will be crucial on how current pressure points will work itself out.

For profitable stocks - time to partial sell and take profits ? 

- Do you think Geopolitical tension is a “valid” factor affecting US market sentiments?

- Do you think its (a) prudent to sit and wait OR (b) buy the dip? 

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