JPMorgan Earnings Beat Gives Market A Boost

Stocks appear on track to follow up Wednesday’s big sell-off with positive start to today’s session. Not to suggest that we will have a repeat of what we experienced on Wednesday, but that session started in the green as well.

There is no specific catalyst for today’s gains or Wednesday’s losses, but overall sentiment remains very negative, reflecting fears about China and the global economy. None of those headwinds are new, but they have come to a head in recent days, pushing the major indexes to within striking distance of the August lows.

We have discussed these issues at length in this space and will continue to do that in future as well. But let’s discuss something positive today — the J.P. Morgan (JPM – Analyst Report) earnings report this morning that kick-started the Q4 earnings season in style for the big banks.  

J.P. Morgan not only beat on the top- and bottom-lines, but the report’s internals point towards positive momentum in core business fundamentals. The strength was particularly notable in the company’s consumer operations that includes its Chase banking operations and credit card business.

The improvement in loan volumes, credit quality and net interest margins bodes well for other banks – Wells Fargo (WFC – Analyst Report) is on deck to report results Friday and most of the regional operators will be reporting next week.

Earnings in J.P. Morgan’s investment banking business were also up, but that was mostly due to lower legal expenses. Investment banking revenues were down -11% from the year-earlier period, with gains in the advisory business offset by weakness in debt underwriting and capital markets activities. The investment banking softness had been well telegraphed, but they nevertheless provide read-throughs for Goldman Sachs (GS – Analyst Report) and Bank of America (BAC – Analyst Report) next week.

We will know more after the earnings call, but the J.P. Morgan press release refers to ‘stress’ in the bank’s energy sector portfolio. This has emerged as an area of concern lately as oil prices have turned lower afresh in the New Year. Overall Q4 Finance sector earnings are expected to be flat, but J.P. Morgan’s results offer hope that actual results will likely end up being better than expected. The gains in net interest margin and loan portfolio are particularly favorable for the sector’s earnings power in Q4 as well as the current period.