JPMorgan Q3 preview: Where next for JPM stock?

When will JPMorgan release Q3 earnings?

JPMorgan will release third quarter earnings before the markets open at 0700 EDT on Friday October 14. A conference call will follow at 0830 EDT.

JPMorgan Q3 earnings consensus

Wall Street forecasts JPMorgan will report a 6.5% increase in managed revenue to $32.43 billion in the third quarter, while adjusted EPS is expected to fall 22.5% from the previous year to $2.90, according to consensus numbers from Bloomberg.

JPMorgan Q3 earnings preview

It is expected to be another tough quarter for US banks this earnings season, with earnings set to fall across the board. You can read more about what to expect this season in our US Banks Q3 Earnings Preview.

Rising interest rates, a resilient jobs market and favourable conditions boosting the likes of fixed-income trading all remain tailwinds. Net interest income should be some 28.5% above last year at $16.8 billion, according to consensus figures, as both interest rates and demand for loans continue to rise.

Markets were briefly hoping last week that the Federal Reserve would start to pivot towards a more dovish stance, but this was quickly dashed after the latest data showed rising rates are yet to feed through to the jobs market and several members of the central bank said rates would continue to rise to get inflation down. With that in mind, US inflation data on Thursday – the day before JPMorgan reports – will be the next key set of numbers that markets will use to gauge the Fed’s mood, with FOMC meeting minutes also out on Wednesday. You can read more about these events, which could prove influential on the share price of US banks, in our Week Ahead.

However, the banking industry is also seeing the boost from releasing reserves for potentially bad loans in the wake of the pandemic unwind as they start to build their rainy-day funds and report larger write-downs amid fears that the Fed’s determination to keep hiking rates will push the economy into a recession, with demand for the likes of mortgages already taking a hit. JPMorgan is expected to report a loan loss provision of $1.21 billion in the third quarter, made up of $894 million of net charge-offs and $314 million of net reserve build. This will be the main drag on earnings considering it boosted results by some $1.5 billion the year before.

Just yesterday we saw CEO Jamie Dimon warn that he expects the US economy to dip into a recession next year, painting a bleak picture as markets begin to consider what to expect in 2023. Speaking in an interview on CNBC, the boss said factors such as rising rates and the geopolitical tensions spawning from Russia’s invasion of Ukraine increase the risk of a downturn.

‘These are very, very serious things, which I think are likely to push the US and the world – I mean, Europe is already in recession – and they’re likely to put the US in some kind of recession six to nine months from now,’ Dimon said, adding that he believes this could see US stocks drop by up to another 20% when asked where the bottom is for the S&P 500 ahead of this earnings season.

‘I think the next 20% will be much more painful than the first. Rates going up another 100 basis points are a lot more painful the first 100 because people aren’t used to it,’ Dimon warned.

Meanwhile, investment banking is also suffering thanks to a stale market for dealmaking and IPOs, with fees forecast to fall 49% this quarter. Dimon said this was one of the early signs that a recession was looming. The uncertain outlook has prompted most IPO candidates to delay or cancel their listing plans and tighter financing conditions have weighed on M&A appetite. Revenue from fixed-income trading is forecast to rise 11.6% and counter a 5% drop from equities trading.

JPMorgan, the biggest US bank by assets and seen as the industry bellwether to watch, has seen its shares slump by over 34% year-to-date, having been among the underperformers with the Dow Jones US Banks Index down 26% since the start of 2022.

One of the reasons for this is management highly cautious tone with its outlook back in July, when it temporarily suspended share buybacks so it could build its capital buffers. The Federal Reserve told JPMorgan in the last round of stress tests that it needed to raise its stress capital buffer to 4.0% from 3.2% and a minimum CET1 ratio of 12.0%, up from 11.2%. An existing buyback programme is still running, and it is still paying a dividend, although this has also seen dividend growth lag behind some rivals. Notably, it has already cleared that important 12% barrier with its CET1 ratio coming in at 12.2% in the last quarter.

‘Geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road,’ JPMorgan CEO and chairman Jamie Dimon warned in the last quarter.

Where next for JPM stock?

JPMorgan shares have been stuck in a downtrend throughout 2022, having formed a series of lower highs and lower lows. The latest leg of this downtrend can be traced back February.

The stock hit its lowest level in almost two years at the end of September at $104.40, pushing the RSI onto the cusp of entering oversold territory and attracting buyers back into the market. The stock is now trading only just above this level and markets will be watching to see whether the next trough will be above or below the last one to gauge whether that two-year low can hold and if the downtrend remains intact. If the stock falls back below that floor then it could open the door to a larger drop toward $99, in-line with the level of support seen throughout late 2020.

Any recovery should first target the $110.70 level of support seen in July before trying to climb above the last peak at $113. That would bring the moving averages into play, with the 100-day figure currently aligning with the downtrend that has been playing out for the last nine months.

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