JPMorgan
JPMorgan's strong earnings and share price gain is surprising given the compression in the yield curve over the past 12 months. Typically, bank earnings are linked to the yield curve which approximates the spread between borrowing and lending. However, JPMorgan's success indicates that the company has been able to diversify its revenues across multiple segments, allowing it to thrive in multiple environments.
Earnings in Focus
Profits in 2019 were up 12% compared to 2018. Major contributors were increases in credit card spending and consumer borrowing which is an indication of strength in the labor market. Revenue from bond trading and investment banking were also above expectations, no doubt a reflection of the buoyancy in financial markets. Revenue in the markets and securities division increased by more than 55% with bond trading growing at 85% and stock trading increasing by 15%.
The strength in these areas intensified in the fourth quarter and should spill over into the new year. CEO Jamie Dimon attributed this to "market activity" and resolution of U.S.-China trade issues. He also said that JPMorgan's data indicates that the consumer remains in strong position with no indication of weakness in leading indicators like delinquencies. He added that the holiday season was also exceptionally strong.
Looking Ahead
JPMorgan is coming off a 42% gain in 2019. The stock is actually slightly lower on the year despite broader equity strength and these record earnings above consensus. In the near-term, it may be an indication that the stock's bullish trend may be exhausted. Traders and investors should wait for some sort of dip or consolidation to add given the recently failed breakout. Bears can consider shorting with a stop at its December highs if they are expecting the market to move lower.
