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Will JPMorgan report a drop in Q4 earnings?

JPMorgan share price: JPMorgan CEO Jamie Dimon speaks into a microphone, backed by a sign displaying the JPMorgan logo.

The JPMorgan Chase & Co. [JPM] share price fell 16.1% in 2022 amid investor concerns over a gloomy economic outlook. After opening the year at $159.86, the shares trended downwards, hitting an almost two-year low of $101.28 during intraday trading on 12 October. 

However, the stock rebounded from that October low, rising more than 30% to close the year at $134.10, amid signs that US inflation had passed its peak. 

Although investor sentiment towards the stock has improved, analysts are forecasting that JPMorgan could report a year-on-year decline in fourth-quarter earnings when it unveils its latest results on Friday. 

Earnings predicted to fall, despite higher revenue

JPMorgan is expected to post per-share earnings of $3.12 for Q4, representing a year-on-year fall of 6.3%, according to analyst estimates compiled by Zacks Investment Research. 

Last time out, the bank reported Q3 earnings per share (EPS) of $3.12, beating estimates of $2.96 by 5.4%. The largest US bank by assets has beaten consensus EPS estimates twice in the last four quarters, as noted by Zacks. 

The research firm also says that consensus estimates point to Q4 revenue of $33.94bn, up 16% versus the year-ago period. JPMorgan, like other US banks, has benefited from the Federal Reserve’s interest rate hikes by raising rates on loans more than on deposits. 

The bank’s net interest margin – a key metric in the banking industry that measures the difference between what a bank pays on deposits and earns from loans and other assets, and which JPMorgan calls its “net yield on interest-earning assets” – widened to 2.09% in Q3, up from 1.62% in the year-ago quarter, beating expectations of 1.99%. 

Earnings are projected to fall despite higher revenue partly because of an expectation that the bank will set aside more money to cover potential losses from bad loans. In Q3, provisions for credit losses came in at a greater-than-expected $1.54bn, suggesting that the largest US bank by assets is bracing itself for a rise in unemployment and a possible recession.

Where next for JPMorgan shares? 

A second successive quarterly earnings beat could buoy the bank’s stock. The JPMorgan share price, as shown in the chart below, has seen a decent rebound from the October 2022 lows, retracing up to 50% of its decline since the record high of October 2021.

Source: CMC Markets

The shares, which on Friday climbed 1.3% to close at $137.94, are trying to push above $138. A break above this level could potentially propel a move towards resistance at $145.50, with support coming in at the December low of around $128.50. 

Analysts appear cautiously optimistic on the stock’s potential to make further gains. Among 27 analysts polled by the Financial Times in January, five analysts gave the shares a ‘buy’ rating, 11 expected them to ‘outperform’, and 11 analysts rated the stock a ‘hold’. There were no ‘underperform’ or ‘sell’ ratings. Among the 25 analysts offering a 12-month price target for JPMorgan, the median estimate of $145.10 represents a 5.2% increase on Friday’s closing price of $137.94. 

Although JPMorgan’s Q4 earnings are expected to fall year-on-year, the Fed’s tightening cycle and its plans to raise interest rates even higher could create a favourable environment for US banks. Shareholders will also be keen to find out whether the bank achieves CEO Jamie Dimon’s ambition to resume stock buybacks early this year. JPMorgan is set to release Q4 results before US markets open on Friday 13 January.

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