JPMorgan stock remains vulnerable to the coronavirus’ impact on the global economy, low interest rates and potentially stiffer regulations on the financial sector under a Joe Biden White House. But the bank plans to buy back $30 billion in shares next year, after the Federal Reserve found it and other banks were solid enough to withstand a severe recession. So is JPM stock worth buying right now?
JPMorgan Chase (JPM) is the biggest U.S. bank by market value. Markets see it as a window into U.S. consumer spending and corporate sentiment. When JPMorgan CEO Jamie Dimon offers his thoughts on the economy or broadcasts his complaints about regulations, investors listen.
A GOP-led Senate could spare banks from the toughest regulations. But two runoff elections in Georgia in January will ultimately determine the balance in the Senate.
However, despite the bank’s its reputation, JPMorgan stock has largely trailed the S&P 500 since 1986. Here’s a breakdown of the JPM stock chart and financials.
Fed Sees ‘Strong Capital Levels’
The Fed on Dec. 18 released results its second stress test of the banking sector this year, finding that banks “could continue to lend to households and businesses even during a sharply adverse future turn in the economy.” The Fed tacked on a second stress test this year — up from the usual one per year — in an effort to more closely track how banks were holding up as the pandemic shut down businesses and strained the economy.
The Fed also said banks could begin buying back stock again, with some limitations. It said that in the first quarter of next year, dividends and buybacks would be limited to an amount based on income over the past year. “If a firm does not earn income, it will not be able to pay a dividend or make repurchases,” it said.
The Fed suspended buybacks earlier in the year to ensure banks could retain cash. The central bank also capped dividend payments.
Afterward the Fed released the stress test results, JPMorgan said it planed to keep its quarterly dividend of 90 cents per share for the first quarter. And it said it planned to begin buying back $30 billion in stock in the first quarter as well.
JPM stock jumped on Dec. 21., hitting the highest level since early March, when the coronavirus first sparked a market collapse.
$100 Billion Set Aside
Still, the Fed said under its stress tests, big banks would have lost more than $600 billion. It said those institutions had set aside roughly $100 billion to cover potentially soured loans.
The Fed on Dec. 16 signaled that it will hold its benchmark interest rate near zero through 2023. The move will keep other interest rates low and thus reduce borrowing costs for customers. But it will limit the profits banks take in on the interest they collect on loans.
The Fed also upgraded its economic growth forecasts. JPMorgan in October said it saw more encouraging signs in the economy, even as it braced for more pain ahead.
JPM Stock Fundamental Analysis
Earnings growth is a key characteristic of top stocks. JPMorgan earnings per share have enjoyed double-digit gains for the past eight quarters. That all came to a halt in April, when the bank’s first-quarter earnings per share plunged 71%.
In the second quarter, they fell 51%, as a massive $9.3 billion provision for credit losses offset a surge in trading revenue. In the third quarter, however, earnings rose 9%, helped by a boost in trading revenue.
In early December, CEO Dimon said Q4 trading and investment banking revenues were “up about 20%, maybe a little more,” indicating just a slight slowdown from Q3’s 25% gain.
The pandemic’s shutdown of the economy has threatened people’s ability to keep up with bill payments. But the company’s reserves in the third quarter were much smaller.
Still, the company said it expected a “meaningful increase” in charge-offs — or debt considered unlikely to be collected — in the second half of next year, as stimulus aid and other payment relief measures wear off.
U.S. lawmakers have agreed to another $900 billion in aid. Vaccinations have begun. But as rising cases swamp hospitals, more states and cities could restore restrictions on gatherings and businesses.
Analysts expect JPMorgan earnings to slide 30% in 2020 overall, after climbing 19% in 2019. They expect earnings to grow 18% next year.
Election Impact On JPM Stock
President-elect Biden’s policy goals hang on two Senate runoff elections, set for Jan. 5 in Georgia.
Those elections will determine whether Republicans hold onto Senate control or whether the Democrats can secure 50 seats, with Vice President-elect Kamala Harris as a tie-breaking vote. More moderate senators could also give the Democrats the edge in narrow votes.
Analysts, before the election, said any new regulations under a so-called blue wave likely wouldn’t be as tough as those passed in the wake of the 2008 financial crisis.
Fed Takes Action
In addition to keeping short-term rates near zero, the Federal Reserve said Dec. 16 it would continue to increase its government bonds by at least $80 billion per month and mortgage-backed securities by at least $40 billion per month.
Policymakers said that trend would continue “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”
“These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the central bank said.
JPM Stock Vs. Fintech
But JPMorgan is also rolling out more mobile payment functions to mirror the fintech upstarts. In October, JPMorgan launched its mobile payment service QuickAccept.
QuickAccept lets merchants process card payments within minutes through a mobile app or contactless card reader. Merchants will be able to see sales hit their Chase business accounts on the same day, free of charge. In contrast, Square charges 1.5% to make instant transfers and sales appear the following day or later.
Also in October, said its digital currency had been put to commercial use for the first time. The bank has launched a new business around the technology underpinning the coin.
JPMorgan Stock Technical Analysis
JPMorgan stock has been choppy for much of the second half of 2020.
JPM stock is sitting above its 50-day and 200-day lines. While the stock has rebounded from its March low, its relative strength line has been uneven since June. The RS line tracks a stock’s performance vs. the S&P 500 index.
The chart has been messy, but shares appeared to form a handle from a cup base with a 123.60 entry. The buy range extends to 129.78.
Longer term, the RS line shows that JPM stock has largely moved in line with the market going back to 1998, or even 1986. That’s also a problem for banking giants such as Citigroup (C), Goldman Sachs (GS) and Bank of America (BAC). Banks tend to prosper along with the economy. But if the economy is doing well, so will the stock market generally.
JPMorgan stock and its rivals can have periods of outperformance, as they did near the end of 2019. JPM stock, Goldman Sachs, Bank of America and others outperformed the market from April 2016 to March 2017, with most of those gains following Trump’s surprise election victory.
But long-term outperformance has been ephemeral for JPM stock, even though it has generally outperformed its big peers.
Put another way, if you had bought the SPDR S&P 500 ETF (SPY) back in 1998, you’d have the same or better returns with far less risk.
JPM Stock Vs. Other Bank Stocks
JPMorgan stock has a mediocre 55 Composite Rating, on a 1-99 scale with 99 tops. Its EPS Rating, according to MarketSmith chart analysis, stands at 70. IBD encourages investors to focus on stocks with Composite Ratings of 90 or higher.
Morgan Stanley (MS) has a Composite Rating of 84, the highest of the big banks. Its EPS Rating is 96.
Citigroup stock has a 34 Composite Rating and a 42 EPS Rating. Among the other big banks, Bank of America has a 39 Composite Rating and an EPS Rating of 60. Wells Fargo has a Composite Rating of 4 and a 16 EPS Rating.
Goldman Sachs stock has a Composite Rating of 77 and an EPS Rating of 91. Goldman Sachs was in a consolidation pattern.
Is JPM Stock A Buy?
JPMorgan has a market value of around $379 billion, according to MarketSmith. Its business is a one-stop financial shop for Wall Street and Main Street. Bigger double-digit earnings gains held up in 2019. But how much the coronavirus might damage the economy long term, and its earnings, is unknown.
Shares are in buy range after breaking out from a 123.60 buy point. But JPMorgan stock has also been lagging the S&P 500 index for the past couple of years. Longer term, JPM stock, like other big banks, has a poor record when it comes to beating the broader market for long stretches.
JPMorgan earnings will also continue to be under pressure from the Fed’s near-zero rates. And while trading revenue saw a spike in Q3, it has been volatile in recent years and not a steady growth driver.
Bottom line: JPM stock is technically a buy as shares are in buy range and will enjoy a tailwind in 2021 when buybacks resume. But key fundamental metrics lag CAN-SLIM guidelines. Investors seeking growth stocks to buy might want to look elsewhere. Check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.
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