Buy JPM as Cooling Inflation Hits US Market?
A new cycle begins.
After Economic & Jobs reports are out, its back to inflation cycle again.
Consumer Price Index (CPI) opens the start of a month.
Personal Consumption Expenditure (PCE) closes the end of a month.
This Thu, 11 Jul 2024 CPI inflation report is expected to be the main event for US markets.
This comes about:
At the start of 2nd quarter corporate earnings reporting season.
A handful of Treasury debt auctions.
And potential developments in the presidential election race.
Like all marquee economic releases, June CPI numbers could pose serious implications for markets.
Investors need to pay close attention (especially) to coming inflation numbers because timing of the first interest-rate cut by the Fed, is at a forked road.
Hypothetically - What If:
A smaller than expected rise could encourage the Fed to more forcefully prime the market for a rate cut at the September FOMC meeting.
As mentioned previously, some even postulated that a sufficiently weak number could even open the door to a rate cut in a few weeks time.
Although futures-market traders have dismissed it as extremely unlikely, according to CME Group data.
Conversely, a hotter-than-expected data, seen as unlikely by most economists, could stop the stock-market rally in its tracks.
.
On Fri, 05 Jul 2024, veterans Tom Lee (Fundstrat) and Neil Dutta (Renaissance Macro) warned that Wall Street might be underestimating the possibility of a cut at the Fed’s July meeting in a MarketWatch’s commentary.
Lee said “If this is another soft reading, there is a possibility of a Fed cut at the July FOMC meeting,”.
Dutta said “he believes chances of a cut in July have been ”underpriced”. Afterall, this man has been arguing in the past few months that the Fed needs to “get on with it” and cut rates as soon as possible to avert a more painful economic downturn.
Investors would do well to take note of their views seriously.
When Inflation data is “weak”.
If Thursday’s CPI data do undershoot, stocks would likely rally alongside bonds as Treasury yields continue their recent slide.
According to Dow Jones Market Data, CPI data days have typically elicited a notable reaction in stocks since the Fed started raising interest rates in early 2022.
To be fair, the magnitude of these swings has waned as inflation slowed.
Still, stocks have seen an average move of 0.9% on CPI days since the beginning of 2024 — nearly twice the S&P 500’s daily average move of 0.5% through Friday.
More importantly, any sign that the Fed might be close to cutting rates could boost corners of the market that have lagged the S&P 500.
In particular, (a) Small caps and (b) more cyclical & interest-rate sensitive stocks (eg. those from Real estate sector) could zoom higher.
Real estate, has been the worst performer among the S&P 500’s 11 sectors over the past year.
While the small-cap Russell 2000 index (RUT) has moved marginally lower since the start of 2024, according to FactSet data.
In an interview with MarketWatch, Mutual of America Capital Management, President - Joseph Gaffoglio has said:
When the Fed does cut rates, that could be the catalyst for the market to broaden out.
He also prefaced above statement, saying he doesn’t expect the Fed will move to lower borrowing costs any time soon. The one cut comes later this year in either November or December is more likely.
CPI June Forecast.
Economists polled by The Wall Street Journal (WSJ) expected June 2024 headline inflation to slow to 3.1% YoY versus May’s 2024 data of 3.3%.
Core CPI (a more closely watched figure) is expected to remain status quo at 3.4%.
Casting CPI inflation aside for a moment, does this Friday present a “Buy” or “Sell” opportunity for US bank stocks as US bigger financial institutions hand in their earnings report cards.
Forecast - JP Morgan.
Overall market consensus is $JPMorgan Chase(JPM)$ will report a weaker set of earnings YoY.
What Is The Damage ?
(1) 2nd quarter Forecast.
Revenue: expected to be $41.9 billion, falling by -1.18% YoY from $42.4 billion (Q2 2023).
Earnings per share (EPS) : expected to be between $4.13 to $4.19 YoY, falling by -5.63% to -6.98% from $4.44 (Q2 2023). (see above)
(2) FY 2024 forecast:
Earnings per share (EPS): expected to be $16.44, falling by -2.1% from $16.80 (FY 2023).
Analysts said the fall has been “anticipated” since Q1 2024 earnings’ conference, when JPM has already fore warned of an “uncertain” year ahead amid geopolitical tensions and persistent inflationary pressures.
My Viewpoints & Market Reactions?
Based on past encounters, on the run up to US Inflation reporting, US market will be “jittery”.
I don’t think it will be any difference for June’s CPI report due out on Thursday morning.
This time round, market might even be “turbulent” because Fed chairman, Mr Powell has been scheduled to give his semiannual testimony on monetary policy to Capitol Hill on:
Tue, 9 Jul 2024 - to the Senate Banking Committee.
Wed, 10 Jul 2024 - to the House Financial Services Committee.
This is when lawmakers from both sides of the aisle would “grill” Mr Powell on a range of topics from interest-rate policy to the state of the banking system.
It is hoped that the tone set during the 2-day meetings, (a) would not too hawkish & aggressive and (b) any negative sentiments do not filter down to US market and worsen the already “jittery” sentiments.
Should US market heads into Friday in a depressed state, it might just be present a “Buy” opportunity for JP Morgan come Friday when the bank releases its Q2 earnings in the morning.
YTD, JP Morgan has gained +19.01% so far.
In 2024, the bank bottomed at $167.09 on 17 Jan 2024.
It peaked at $208.83 per share on 02 Jul 2024; its highest so far.
Any correction/s on Friday will become potential upsides subsequently.
If interest rate gets cut in September 2024, US stock market could jump. Buying JP Morgan now might be a good move to get ready for that possible rise.
Must Read: Click on below titles to access. Give a like & help to repost ok. Thanks.
Do you think US interest rate will get its -0.25% cut in September 2024 ?
Do you think now is the “right” time to buy into high performing JP Morgan ?
If you find this post interesting, give it wings! ️ Repost and share the insights ?
Do consider “Follow me” and get firsthand read of my daily new post. Thank you.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
I wouldn't mind a dividend increase.
Pls help to "Re-post". Tks! Rating is important (to me).
Would you consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!