The big banks have been in a protracted downtrend since hitting their post-pandemic peak but it looks like the bottom is in for JPMorgan Chase & Co. (NYSE: JPM) and some of its closest competitors. While the Q3 reporting season is not quite what the market expected, results from consumer-oriented banks like JPM and Bank of America (NYSE: BAC) are outpacing their consensus estimates and they are also set up for strength next year.
Looking at the numbers, on a sector basis the Financial Sector (NYSEARCA: XLF) is already underperforming its weak Q3 expectations by more than 400 basis points and the trend in consensus was lower, to begin with. On top of that, the Q4 consensus figure is trending lower as well, getting deeper into negative territory and cementing the sector as this year’s weakest. Next year, however, things change dramatically. This year’s laggard sector will become a top-four earnings grower in 2023 and the consensus estimates for next year are rising, led in part by results from JPMorgan.
JPMorgan Outperforms On Consumer Strength, NII
JPMorgan Chase & Co. had a great quarter bringing in $32.72 in net revenue. This is good for a growth of 10.4% over last year and it beat the Marketbeat.com consensus by 260 basis points. The best news is that consumer banking appears to be holding up and is amplified by expected strength in the lending segment of the business. On a segment basis, the CCB segment reports consumer deposits up 9% with loans up 2% and card transaction volume up 13%. The CiB segment increased by 8% but was offset by a 43% decline in the CB segment and a 13% decline in assets under management.
"In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy," said CEO Jamie Dimon. "However, there are significant headwinds immediately in front of us stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices."
The strength in revenue was echoed on the bottom line as well. The company reported a YOY decline in net income due to an increase in capital reserves but still managed to outpace the consensus estimate by $0.23 or 820 basis points. The strength is expected to continue as well and the company is set up to resume share repurchases in 2023. Efforts to comply with Basel III which has still not taken full effect. The real takeaway is the company’s tier 1 capital ratio is approaching 300% of the requirement which has it in a sound position to weather the financial hurricane Mr. Dimon predicted was coming.
JPMorgan Chase & Co. Guide The Market Higher
Not only did JPMorgan Chase & Co. exceed expectations but the company guided the market’s expectations for 2023 higher. The company is now expecting core NII to come in the range of $61.5 billion compared to the prior expectation of $58 billion. Based on the current health of the consumer and the outlook for inflation/interest rates there is a chance this outlook is cautious.
The price action in JPM stock popped in the wake of the report and is indicating a bottom. The stock popped more than 5% the day before the report and has extended that another 5% in the days since. The move confirms support at the $105 level and that is backed up by the stochastic and MACD indicators as well. Assuming the market follows through on this move, the stock could reach $120 in the very near term and eventually trace out a full reversal at or near the current levels.
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