Oct 12, 2023

US investment banks kick off earnings season for the financial sector this week.

JPM: Daily Chart

The price of JP Morgan stock was dragged lower by the broader market but found support at the $144 level. That will be the important mark for this week, with the $150 level in sight for a larger rally.

JPMorgan is expected to start the third-quarter 2023 earnings season with a benefit from higher interest rates. The acquisition of the troubled First Republic Bank in May is also expected to continue benefiting its finances. That should support the company’s net interest income.

Market volatility and client activity are expected to be subdued in the third quarter due to seasonality. There are also risks of an economic downturn and the central bank’s hawkish monetary policy stance on inflation.

That could mean that JPMorgan is likely to have recorded a weak performance in revenue.

Equity market revenue of $2.29 billion would mark a slight fall, while estimates for fixed-income market revenue are $4.58 billion. Global deal-making saw a slight rebound in the third quarter, but on a year-over-year basis, M&A activities are still slow. External problems such as inflation, rising interest rates, and fears of a global economic slowdown have hurt deal-making.

Higher mortgage rates, which kept home buyers on the sidelines, led to smaller volumes. These factors are likely to have weighed on JPMorgan’s mortgage banking income.

JPMorgan is expected to have set aside a large amount of money for potential bad loans due to geopolitical and macroeconomic concerns and tighter financial conditions. Analysts expect to see provisions of $2.13 billion, suggesting a rise of 38.6% year over year.

Despite some defensive activity, JP Morgan should see its earnings come in close to estimates, and investors should turn their attention to the rally in the broader market, which can carry JPM higher in the weeks ahead.

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