JP Morgan Up on Strong Investment Banking Performance

JP Morgan Up on Strong Investment Banking Performance

In mid-April, JP Morgan Chase & Co (NYSE: JPM), the largest US bank by assets, reported a 17% y-o-y increase in the fiscal 2017 first-quarter net income, compared to last year’s similar quarter. However, the stock has hardly moved upwards so far. In fact, most of the banking stocks are in a downward trend, in spite of reporting good results. The reason is that the mixed US economic data had created doubts about the possibility of a Fed hike in June. That kept most of the banking and finance stocks in a downward spiral. However, we anticipate the stock to rise in the nearby future due to the reasons mentioned below.

A 11% increase in the interest income and 36% increase in the investment banking fee enabled the New York-based company to report total revenues of $25.586 billion, up 6% from $24.08 billion in the first-quarter last year, and greater than analysts’ estimates of $24.877 billion.

During the first-quarter of 2017, the lender posted net income of $6.45 billion, or $1.65 per share, compared with $5.52 billion or $1.35 per share in the corresponding quarter of 2016. The net income in the recent quarter surpassed the Thomson Reuters’ consensus estimates of $1.52 per share. The Q1 2017 results included a tax benefit of $373 million.

Higher interest rates and loan growth contributed to a 6% y-o-y increase in the net interest income to $12.4 billion. Corporate & Investment banking segment aided a 6% increase in non-interest revenue to $13.2 billion. Provision for credit losses decreased to $1.32 billion in the recent quarter, compared with $1.824 billion in the similar quarter of 2016.

Corporate & Investment banking net income grew 64% y-o-y to $3.24 billion. In particular, 1Q17 banking services revenue grew to $3.02 billion, from $2.42 billion in 1Q16. Similarly, markets & investor (trading) services revenue was $6.52 billion, up 14% on y-o-y basis. Analysts at StreetAccount had anticipated trading revenue of $5.51 billion.

Commercial banking net income was $799 million, up $303 million from the prior year. However, an 18% decline in the mortgage banking revenue resulted in a 20% y-o-y decrease in the Consumer & Community banking net income to $1.99 billion. The return on common equity increased to 11%, from 9% a year earlier.

Finally, the odds of a rate hike in June increased to 94%, after the Fed released its policy statement. A rate hike would further improve the top and bottom line of the bank. Thus, fundamentally, the stock should be bought on dips.

The price chart indicates consolidation of the stock above the support level of 86. The rising accumulation/distribution indicator and the ascending triangle formation indicate that the stock is about to make a bullish breakout. So, we can expect the stock to reach the next resistance level of 91.30.

JP Morgan Chase - Technical Analysis - 16th May 2017

To take advantage of the uptrend, a call option can be bought from a binary broker. Among the several option expiration dates offered, a trader can choose a date close to May 24th. Furthermore, it is better to invest when JP Morgan Chase trades near $86 in the NYSE.

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