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Trading to Aid JPMorgan (JPM) Q1 Earnings Amid Coronavirus Woes
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Coronavirus-related concerns resulted in an unexpected rise in market volatility during first-quarter 2020. With a spike in volatility and higher client activities, JPMorgan’s (JPM - Free Report) trading businesses (both equity and fixed income) are likely to have received a significant boost. Trading revenues, which constitute nearly 20% of total revenues, will likely support its upcoming results that are slated to release on Apr 14, before market open.
Although the year 2020 began on a positive note, coronavirus and concerns surrounding its impact on the economy resulted in a roller coaster ride, with all the major indexes — the S&P 500, Dow Jones and Nasdaq — swinging from new highs to record lows. Owing to such a volatile market performance, investors are moving toward safe havens like Treasury bonds and other commodities like gold. Hence, JPMorgan’s equity and fixed income market revenues are expected to have improved in the to-be-reported quarter.
Before the virus wreaked havoc on investor sentiments and resulted in heightened volatility, JPMorgan had projected “mid-teens” percentage growth in trading revenues for the first quarter.
Thus, trading revenues are likely to have been robust in the to-be-reported quarter. The Zacks Consensus Estimate for equity trading revenues of $1.97 billion suggests a rise of 13.3% from the prior-year reported number. The consensus estimate for fixed income trading revenues indicates an increase of 1.3% year over year to $3.77 billion.
Other Factors at Play
Rise in mortgage banking fees: The Federal Reserve’s accommodative monetary policy and decline in mortgage rates during the first quarter drove refinancing activities, while growth in new originations had been muted. This apart, rise in demand for residential real estate loans is expected to have supported JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $435 million indicates a 9.8% increase from the prior-year reported number.
Soft growth in investment banking (IB) fees: Global M&A activity during the first quarter was significantly hampered amid the coronavirus outbreak. Thus, JPMorgan’s advisory fees are likely to have been negatively impacted.
Overall weak equity market performance resulted in a decline in follow-up equity issuances, while IPOs were a bright spot. Bond issuance volumes were strong, while debt issuances were muted owing to soft loan demand. So, growth in JPMorgan’s equity underwriting fees and debt origination fees (accounting for almost 60% of total IB fees) are expected to have been weak in the first quarter.
The consensus estimate for IB fees of $1.93 billion indicates a 4.7% rise from the prior-year reported number.
Decline in net interest income (NII): The lending backdrop was strong in the first two months of the to-be-reported quarter. But the virus outbreak in March resulted in a drop in loan demand, as business and consumer activities came to a grinding halt. Thus, overall lending scenario remained decent during the first quarter, with commercial and industrial, and real estate loan portfolios having offered considerable support.
However, with the Federal Reserve cutting interest rates to near zero in March to support the U.S. economy from coronavirus-induced slowdown, JPMorgan’s net interest yield and NII are likely to have been adversely impacted.
Notably, management expects NII to be nearly $14.2 billion, indicating no change from the fourth-quarter 2019 level.
The Zacks Consensus Estimate for NII of $13.7 billion suggests a 5.1% decline on a year-over-year basis.
Rise in expenses: With JPMorgan’s plan of entering new markets by opening branches is already on track, operating expenses are likely to have remained on the higher side. Also, higher investment in technology to strengthen digital offerings might have resulted in a rise in costs in the to-be-reported quarter.
For the first quarter, the company expects adjusted operating expenses to be $17 billion.
Here is what our quantitative model predicts:
Our proven model shows that JPMorgan doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for JPMorgan is -2.57%.
Zacks Rank: It currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for earnings of $2.55 indicates a 3.8% decline from the year-ago reported number. Further, the consensus estimate for sales of $29 billion suggests a marginal year-over-year fall.
Banks That Warrant a Look
Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Carolina Financial Corporation is +1.43% and it carries a Zacks Rank of 3, currently. The company is expected to report quarterly numbers in the coming days.
SB ONE BANCORP is likely to report quarterly earnings soon. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +1.56%.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
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Trading to Aid JPMorgan (JPM) Q1 Earnings Amid Coronavirus Woes
Coronavirus-related concerns resulted in an unexpected rise in market volatility during first-quarter 2020. With a spike in volatility and higher client activities, JPMorgan’s (JPM - Free Report) trading businesses (both equity and fixed income) are likely to have received a significant boost. Trading revenues, which constitute nearly 20% of total revenues, will likely support its upcoming results that are slated to release on Apr 14, before market open.
Although the year 2020 began on a positive note, coronavirus and concerns surrounding its impact on the economy resulted in a roller coaster ride, with all the major indexes — the S&P 500, Dow Jones and Nasdaq — swinging from new highs to record lows. Owing to such a volatile market performance, investors are moving toward safe havens like Treasury bonds and other commodities like gold. Hence, JPMorgan’s equity and fixed income market revenues are expected to have improved in the to-be-reported quarter.
Before the virus wreaked havoc on investor sentiments and resulted in heightened volatility, JPMorgan had projected “mid-teens” percentage growth in trading revenues for the first quarter.
Thus, trading revenues are likely to have been robust in the to-be-reported quarter. The Zacks Consensus Estimate for equity trading revenues of $1.97 billion suggests a rise of 13.3% from the prior-year reported number. The consensus estimate for fixed income trading revenues indicates an increase of 1.3% year over year to $3.77 billion.
Other Factors at Play
Rise in mortgage banking fees: The Federal Reserve’s accommodative monetary policy and decline in mortgage rates during the first quarter drove refinancing activities, while growth in new originations had been muted. This apart, rise in demand for residential real estate loans is expected to have supported JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $435 million indicates a 9.8% increase from the prior-year reported number.
Soft growth in investment banking (IB) fees: Global M&A activity during the first quarter was significantly hampered amid the coronavirus outbreak. Thus, JPMorgan’s advisory fees are likely to have been negatively impacted.
Overall weak equity market performance resulted in a decline in follow-up equity issuances, while IPOs were a bright spot. Bond issuance volumes were strong, while debt issuances were muted owing to soft loan demand. So, growth in JPMorgan’s equity underwriting fees and debt origination fees (accounting for almost 60% of total IB fees) are expected to have been weak in the first quarter.
The consensus estimate for IB fees of $1.93 billion indicates a 4.7% rise from the prior-year reported number.
Decline in net interest income (NII): The lending backdrop was strong in the first two months of the to-be-reported quarter. But the virus outbreak in March resulted in a drop in loan demand, as business and consumer activities came to a grinding halt. Thus, overall lending scenario remained decent during the first quarter, with commercial and industrial, and real estate loan portfolios having offered considerable support.
However, with the Federal Reserve cutting interest rates to near zero in March to support the U.S. economy from coronavirus-induced slowdown, JPMorgan’s net interest yield and NII are likely to have been adversely impacted.
Notably, management expects NII to be nearly $14.2 billion, indicating no change from the fourth-quarter 2019 level.
The Zacks Consensus Estimate for NII of $13.7 billion suggests a 5.1% decline on a year-over-year basis.
Rise in expenses: With JPMorgan’s plan of entering new markets by opening branches is already on track, operating expenses are likely to have remained on the higher side. Also, higher investment in technology to strengthen digital offerings might have resulted in a rise in costs in the to-be-reported quarter.
For the first quarter, the company expects adjusted operating expenses to be $17 billion.
Here is what our quantitative model predicts:
Our proven model shows that JPMorgan doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for JPMorgan is -2.57%.
Zacks Rank: It currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for earnings of $2.55 indicates a 3.8% decline from the year-ago reported number. Further, the consensus estimate for sales of $29 billion suggests a marginal year-over-year fall.
Banks That Warrant a Look
Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
BCB Bancorp, Inc. (NJ) (BCBP - Free Report) is expected to release quarterly results soon. The company has an Earnings ESP of +4.17% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Earnings ESP for Carolina Financial Corporation is +1.43% and it carries a Zacks Rank of 3, currently. The company is expected to report quarterly numbers in the coming days.
SB ONE BANCORP is likely to report quarterly earnings soon. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +1.56%.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>