You are here
Home > Stock Market > JPMorgan: Earnings Up, Stock Down – A Sign Of Stock Market Weakness?

JPMorgan: Earnings Up, Stock Down – A Sign Of Stock Market Weakness?


<div _ngcontent-c20 innerhtml="

JPMorgan Chase headquarters in New York. (AP Photo/Seth Wenig, File)

Everything looked perfect Friday in JPMorgan’s pre-opening earnings announcement – the highly anticipated first DJIA company to report. All the hoped for signs were positive, with the numbers hitting new highs and beating expectations. Earnings per share, return on equity, loans, interest spreads, volatility-based trading, and overall company growth – all was great. Moreover, the Tax Bill&nbsp;benefits were visibly large. It was no wonder that the stock opened up +1.5%. But then the decline started, eventually reaching over (5)% down from the opening before closing (2.7)% down from Thursday’s close. Thus, by day’s end, JPMorgan, the first DJIA company to report, with excellent results, was the worst DJIA performer.

Disclosure: Author holds only cash reserves

So, what went wrong?

The Wall Street Journal wrote, “Big Banks Post Strong Results but Investors Want More – Shares of JPMorgan and others fell as their earnings met or exceeded forecasts.” The article&nbsp;defined&nbsp;the “We want more!” rationale&nbsp;for JPMorgan as meaning more loans and more “earnings drivers,” whatever that is supposed to mean. Importantly, that&nbsp;rationale does not answer the article’s question: “Why were the excellent results not good enough?”

Not these reasons:

There were&nbsp;other published guesses, trying to&nbsp;explain JPM’s negative performance: (1) profit selling from a “mini” run-up and (2) less than robust loan growth outlook. However, neither holds water.

JPMorgan did not have a mini run-up preceding the earnings report…

John Tobey

JPMorgan daily graph

And look at&nbsp;the increase in&nbsp;loan growth, coming at the advantageous time of rising interest rates…

John Tobey

Bank loans and interest rates

And not the tired “over valued” argument:

JPMorgan Chase actually looks fundamentally attractive.

  • Earnings growth estimates: 2018 = 28% (prior to Friday’s better-than-expected earnings report) and 2019 = 10%
  • Return on equity is now a highly desirable 15%.
  • At Friday’s close, JPM’s dividend yield is 2.0% (plus the $0.56/quarter dividend could be going up soon, perhaps significantly)
  • The forward price/earnings ratios (based on estimated earnings prior to Friday’s report) are 12.7x for 2018 EPS and 11.6x for 2019 EPS

And probably not Wall Street advice:

The long-time advice of “buy the rumor, sell the news” could be at work here. However, the superior earnings and all cylinders firing for JPMorgan should increase confidence in the expectations for robust economic and financial growth yet to come. In other words, investors should be seeing this earnings report as confirmation of more good times ahead, not as a one-time bump to sell into.

That leaves a possible problem reason: Risk of a weakening market

The stock market, for all its movement, remains stuck, offering both hope and anxiety. At a steady ~10% off its highs, investors can view this market as offering a good time for either shrewd accumulation or wise liquidation. (See “This Stock Market Is Providing Too Many ‘Closeout Sale’ Days – So, Raise Some Cash” for more discussion. See updated stock market graphs at end of this article.)

The key point is the stock market is at risk. If all this bottom movement is foundation building, why doesn’t it get going?

Clearly, investors are wondering “What gives?” based on the many articles that have said not to sell, but to wait for the good news earnings reports – that they will reestablish the bull market move. The latest is Barron’s, “Will Booming Earnings Save the Bull Market?

The quarterly earnings parade is starting, and this one matters more than most. With three-quarters of the companies in the Standard &amp; Poor’s 500 index reporting results over the next three weeks, investors will get their first read on what is expected to be the biggest year for earnings growth since 2010.

The growth rate will be inflated by corporate tax cuts and higher oil prices, but even adjusting for these, results appear likely to impress. Companies also will begin to give details on shareholder treats like bigger stock buybacks and dividends.

Then, after&nbsp;surmising&nbsp;that investors may have held back because of current events such as political news reports, they offer this hopeful outlook:

Happier headlines are on the way, offering relief for the stalled bull market—at least for now. “We’re looking ahead at six, maybe eight quarters of earnings momentum,” says John Lynch, chief investment strategist at LPL Financial, a broker-dealer serving independent financial advisors. “Companies are going to invest some of the extra cash from tax cuts, and consumers are going to spend.”

But, but, but…

That hypothesis is the reason that the JPMorgan earnings report is so important. If investors are waiting for meaningful stock news, they just got it. If such good reports&nbsp;produce only tepid or, worse, negative stock price movement, the hypothesis is disproven, and that means the risk of another stock market decline is higher.

The bottom line

JPMorgan followed the script, confirming that growth has been good and that the Tax Bill’s benefits are here in spades. So, why the stock drop? There are no good reasons – just&nbsp;the “bad” reason of a weakening stock market.

Yes,&nbsp;it is only one day and one company.&nbsp; However, the lack of viable&nbsp;causes for JPM’s drop could indicate a lack of buying interest in this stock market. And that, in turn, could produce further stock market weakness if this pattern continues.

While, there is no way to know at this point, we can say, “There is added risk.” Therefore, a good strategy&nbsp;is to hold some cash reserves, which offer both a hedge and a way to take advantage of opportunities ahead.

Updated stock market graphs

S&amp;P 500 Stock Index…

John Tobey

SP 500 Stock Index

Dow Jones Industrial Average…

John Tobey

Dow Jones Industrial Average daily graph

Dow Jones Transportation Average…

John Tobey

Dow Jones Transportation Average daily graph

“>

JPMorgan Chase headquarters in New York. (AP Photo/Seth Wenig, File)

Everything looked perfect Friday in JPMorgan’s pre-opening earnings announcement – the highly anticipated first DJIA company to report. All the hoped for signs were positive, with the numbers hitting new highs and beating expectations. Earnings per share, return on equity, loans, interest spreads, volatility-based trading, and overall company growth – all was great. Moreover, the Tax Bill benefits were visibly large. It was no wonder that the stock opened up +1.5%. But then the decline started, eventually reaching over (5)% down from the opening before closing (2.7)% down from Thursday’s close. Thus, by day’s end, JPMorgan, the first DJIA company to report, with excellent results, was the worst DJIA performer.

Disclosure: Author holds only cash reserves

So, what went wrong?

The Wall Street Journal wrote, “Big Banks Post Strong Results but Investors Want More – Shares of JPMorgan and others fell as their earnings met or exceeded forecasts.” The article defined the “We want more!” rationale for JPMorgan as meaning more loans and more “earnings drivers,” whatever that is supposed to mean. Importantly, that rationale does not answer the article’s question: “Why were the excellent results not good enough?”

Not these reasons:

There were other published guesses, trying to explain JPM’s negative performance: (1) profit selling from a “mini” run-up and (2) less than robust loan growth outlook. However, neither holds water.

JPMorgan did not have a mini run-up preceding the earnings report…

John Tobey

JPMorgan daily graph

And look at the increase in loan growth, coming at the advantageous time of rising interest rates…

John Tobey

Bank loans and interest rates

And not the tired “over valued” argument:

JPMorgan Chase actually looks fundamentally attractive.

  • Earnings growth estimates: 2018 = 28% (prior to Friday’s better-than-expected earnings report) and 2019 = 10%
  • Return on equity is now a highly desirable 15%.
  • At Friday’s close, JPM’s dividend yield is 2.0% (plus the $0.56/quarter dividend could be going up soon, perhaps significantly)
  • The forward price/earnings ratios (based on estimated earnings prior to Friday’s report) are 12.7x for 2018 EPS and 11.6x for 2019 EPS

And probably not Wall Street advice:

The long-time advice of “buy the rumor, sell the news” could be at work here. However, the superior earnings and all cylinders firing for JPMorgan should increase confidence in the expectations for robust economic and financial growth yet to come. In other words, investors should be seeing this earnings report as confirmation of more good times ahead, not as a one-time bump to sell into.

That leaves a possible problem reason: Risk of a weakening market

The stock market, for all its movement, remains stuck, offering both hope and anxiety. At a steady ~10% off its highs, investors can view this market as offering a good time for either shrewd accumulation or wise liquidation. (See “This Stock Market Is Providing Too Many ‘Closeout Sale’ Days – So, Raise Some Cash” for more discussion. See updated stock market graphs at end of this article.)

The key point is the stock market is at risk. If all this bottom movement is foundation building, why doesn’t it get going?

Clearly, investors are wondering “What gives?” based on the many articles that have said not to sell, but to wait for the good news earnings reports – that they will reestablish the bull market move. The latest is Barron’s, “Will Booming Earnings Save the Bull Market?

The quarterly earnings parade is starting, and this one matters more than most. With three-quarters of the companies in the Standard & Poor’s 500 index reporting results over the next three weeks, investors will get their first read on what is expected to be the biggest year for earnings growth since 2010.

The growth rate will be inflated by corporate tax cuts and higher oil prices, but even adjusting for these, results appear likely to impress. Companies also will begin to give details on shareholder treats like bigger stock buybacks and dividends.

Then, after surmising that investors may have held back because of current events such as political news reports, they offer this hopeful outlook:

Happier headlines are on the way, offering relief for the stalled bull market—at least for now. “We’re looking ahead at six, maybe eight quarters of earnings momentum,” says John Lynch, chief investment strategist at LPL Financial, a broker-dealer serving independent financial advisors. “Companies are going to invest some of the extra cash from tax cuts, and consumers are going to spend.”

But, but, but…

That hypothesis is the reason that the JPMorgan earnings report is so important. If investors are waiting for meaningful stock news, they just got it. If such good reports produce only tepid or, worse, negative stock price movement, the hypothesis is disproven, and that means the risk of another stock market decline is higher.

The bottom line

JPMorgan followed the script, confirming that growth has been good and that the Tax Bill’s benefits are here in spades. So, why the stock drop? There are no good reasons – just the “bad” reason of a weakening stock market.

Yes, it is only one day and one company.  However, the lack of viable causes for JPM’s drop could indicate a lack of buying interest in this stock market. And that, in turn, could produce further stock market weakness if this pattern continues.

While, there is no way to know at this point, we can say, “There is added risk.” Therefore, a good strategy is to hold some cash reserves, which offer both a hedge and a way to take advantage of opportunities ahead.

Updated stock market graphs

S&P 500 Stock Index…

John Tobey

SP 500 Stock Index

Dow Jones Industrial Average…

John Tobey

Dow Jones Industrial Average daily graph

Dow Jones Transportation Average…

John Tobey

Dow Jones Transportation Average daily graph

Let’s block ads! (Why?)



Source link

Comments

comments

Similar Posts

Web Design BangladeshBangladesh Online Market