What JPMorgan and Bank of America are forecasting for 2023
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Back in October, when the big banks released their quarterly earnings, there was a notable disagreement in their forecasts.
Jamie Dimon, CEO of JPMorgan Chase (the largest US bank), and Brian Moynihan, CEO of Bank of America (the second largest US bank), had opposite views of the economy.
At the time, Dimon was expecting a downturn and expressing caution for the future ahead. Moynihan, on the other hand, was optimistic and highlighted all the positives in the economy.
But one quarter later, the message has shifted 180 degrees. Speaking on their respective bank's earnings reports, Dimon was more optimistic, while Moynihan was more pessimistic than before.
Bank Of America
Last quarter, Moynihan talked about what was going well in the economy, especially the US consumer. He remarked that while everyone has been talking about a recession and inflation for months, it hasn't impacted consumers too significantly.
Now, he and Bank of America are preparing for a recession.
Our baseline scenario contemplates a mild recession. … But we also add to that a downside scenario, and what this results in is 95% of our reserve methodology is weighted toward a recessionary environment in 2023.
Bank of America's pessimistic case expects unemployment to rise to 5.5% in 2023 and remain at 5% or above through the end of 2024.
Bank of America's business is heavily impacted by consumer banking. If consumers lose their income, it could have a significant influence on Bank of America's bottom line.
JPMorgan Chase
Opposite of Moynihan, JPMorgan and Dimon expressed concern last quarter, and over the summer, Dimon made headlines when he claimed an economic hurricane was coming.
Now, instead of an imminent storm, he insists there are storm clouds, which could or could not be a hurricane.
JPMorgan's base case is now a mild recession. This recession would include unemployment reaching 4.9% by the fourth quarter of 2023 — lower than Bank of America's forecast.
Dimon also expressed that the US economy currently remains strong. Not one to deviate from his pessimism, Dimon reminded investors of potential future issues.
We still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening
Dimon isn't wrong for being cautious about the future, but it's a promising sign that he has changed his forecast positively since last quarter.
Final Thoughts
Both banks are forecasting a mild recession and unemployment to be around 5%.
Given how dire the outlook was half a year ago, most people would find that scenario acceptable.
It is telling that Moynihan, who manages a consumer-driven bank, has turned more negative than Dimon, who manages an investment-driven bank. Typically, investments precede recessions and recover before the effects are as intensely felt by consumers. There is a delay in experiencing the economic decline.
This impending recession keeps getting pushed back; now it sounds like it won't be here until Q4 2023 or even 2024.
$JPMorgan Chase(JPM)$ $Bank of America(BAC)$
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