JPMorgan Chase & Co. outperforms its competitors. What are the prospects for a further rise in the company’s stock?

JPMorgan Chase & Co.’s Q2 2024 report exceeded both expectations and competitors’ financial performance, driving the value of the bank’s shares to reach a new all-time high. Should we anticipate a further price increase?

The largest US bank, JPMorgan Chase & Co. (NYSE: JPM), released its Q2 2024 report, surpassing expectations. The investment community closely watches the statistics of the largest US banks as they provide insight into consumer economic activity. This article will analyse JPM’s report, review the bank’s management outlook for future quarters, conduct a technical analysis of JPM’s shares, and compare JPMorgan’s reports with those of its competitors.

Q2 2024 reports of JPMorgan Chase & Co. and its competitors

Traditionally, banks are the first to report at the end of the quarter. As of 17 July, JPMorgan Chase & Co.’s capitalisation reached 622 billion USD, making it the largest US public bank. Below is the JPMorgan Chase & Co.’s data for Q2 2024 compared to the same period last year:

• Revenue – 50.90 billion USD (+20%)
• Net income – 18.15 billion USD (+25%)
• Earnings per share – 6.12 USD (+40%)
• Interest income – 22.90 billion USD (+4%)
• Non-interest income – 28.10 billion USD (+37%)
• Investment income – 2.50 billion USD (+46%)
• Provision for credit losses – 3.05 billion USD (+5%)
• Net loan write-offs – 2.23 billion USD (+58%)

A significant increase in net income was driven by 5.00 billion USD gains generated from exchanging Visa Inc (NYSE: V) shares. If this amount were less, net income would have reached 13.10 billion USD, 6.5% lower than in the corresponding 2023 period. Interest income, which accounts for 45.0% of the bank’s total revenue, increased by merely 4.0% in Q2 2024. By comparison, it grew by 11.0% in Q1 2024. The elevated interest rate drives up the bank’s income as loan interest increases. However, this happens until the demand for loans subsides and the number of overdue loans rises as a high loan rate becomes unaffordable for clients.

Although JPMorgan, the largest US bank, showed a gain in the segment, this gain was insignificant, indicating a shrinking demand for loans. The statistics confirm this, showing that JPMorgan Chase’s loan portfolio increased by 6% year-over-year but remained unchanged compared to the previous quarter. Provision for credit losses rose by 5%, which also points to the bank’s concerns about future increases in overdue loans. Net loan write-offs grew by 58%, meaning loan defaults increased. There is a similar issue with deposits, as these stopped growing compared to the previous quarter.

Consumer concerns about the resumption of US inflation are driving demand for real assets. Instead of depositing funds, consumers invest them in financial markets to purchase various assets. Rising prices confirm this: since the beginning of Q2 2024, gold prices have increased by over 9%, the S&P 500 index has gained 7%, and the NASDAQ 100 has added 10%. In JPMorgan Chase’s report, this trend is reflected in a 46% increase in investment income to 2.50 billion USD.

The reports of the two largest US banks – Bank of America Corp. (NYSE: BAC) and Wells Fargo & Co. (NYSE: WFC) – are worth examining to fully understand the financial market environment.

Bank of America Corp. Q2 2024 quarterly report

Bank of America Corp. released the Q2 2024 report on 16 July. Below is its key data compared to the corresponding period in 2023:

• Revenue – 25.40 billion USD (+0.8%)
• Net income – 4.90 billion USD (-0.6%)
• Earnings per share – 0.83 USD (-4.6%)
• Interest income – 13.86 billion USD (-3.0%)
• Non-interest income – 11.70 billion USD (+6.0%)
• Provision for credit losses – 1.51 billion USD (+34.0%)
• Net loan write-offs – 1.53 billion USD (+76.0%)

The Bank of America report shows a worsening situation in the credit sector. The increasing provision for losses indicates that the management expects a rise in overdue loans. Nevertheless, a decrease in the investment banking sector offset a reduction in interest income.

Wells Fargo & Co. Q2 2024 quarterly report

Wells Fargo & Co. published its Q2 2024 report on 12 July. Below is its key data compared to the corresponding period in 2023:

• Revenue – 20.69 billion USD (+0.7%)
• Net income – 6.90 billion USD (-6.8%)
• Earnings per share – 0.83 USD (-5.3%)
• Interest income – 11.90 billion USD (-9.0%)
• Non-interest income – 8.80 billion USD (+19.0%)
• Provision for credit losses – 1.24 billion USD (-27.0%)
• Net loan write-offs – 1.30 billion USD (+70.0%)

The bank’s report also shows a deteriorating situation with loans. However, decreasing provision for losses indicates the management’s optimistic future outlook. The bank could have raised requirements for borrowers and hence does not expect considerable payment delays. Similarly to Bank of America, higher gains from investment banking and asset management fees offset lower interest income.

JPMorgan Chase forecast for 2024

As interest income is the main revenue stream, investors pay close attention to its growth or decline forecasts. In comments to the report, JPMorgan Chase’s management provided a forecast for the second half of 2024. Interest income is expected to face challenges due to deposit payments and sluggish demand for loans beyond the card business. The bank’s profit may also be affected by growing provisions for credit losses and the conversion of interest-free deposits to interest-bearing accounts.

However, the bank is optimistic about investment banking, noting a rise in new investors and higher fees in the asset management sector. The number of mergers and acquisitions is projected to increase this year, generating significant income for the bank.

In conclusion, the bank’s management noted that Q2 report indicators show record revenue and net income, while core indicators remain strong.

Technical analysis and forecast for JPMorgan Chase & Co. stock

On a weekly timeframe, JPMorgan Chase & Co. stock has broken above the upper boundary of the ascending channel and continued its ascent. In such situations, this typically leads to a further price rise by the width of the existing channel. As a result, the main scenario for JPMorgan Chase & Co. shares suggests a price increase to 260 USD.

Divergence on the RSI indicator points to an alternative scenario, with the quotes potentially breaching the support level and returning to the previous ascending channel. In this case, a correction in JPMorgan Chase & Co. shares may continue to 160 USD. This scenario can be considered if the price falls below 200 USD per share.

Technical analysis of JPMorgan Chase & Co. stock

Risks of investing in JPMorgan Chase & Co. stock

Risks of investing in JPMorgan Chase’s shares may include several factors:

Resumption of inflation growth

If inflation resumes growth, the Federal Reserve System (the Fed) will be compelled to postpone lowering interest rates or even worse, start raising them. This will increase the risks of new loan arrears, requiring more extensive provisions to cover losses and leading to increased loan write-offs.

Rising deposit interest rates

If the discount rate is raised, deposit interest will also need to be increased. Otherwise, the bank may see customers move to banks with higher rates, and the increase in deposit interest payments will negatively affect the bank’s profits.

A fall in stock indices

Given that investment banking showed the highest gain in Q2 and offset a drop in other sectors, losses in stock indices may negatively impact JPMorgan Chase’s investment business. This can also affect the credit sector as stocks are widely used as security for loans.

Risks related to inflation, interest rates, and a fall in stock indices pose significant threats to JPMorgan Chase’s profits. Therefore, these factors must be considered carefully when assessing the prospects of investing in the bank’s shares.

Summary

The Q2 2024 reports show that major US banks face various challenges, including lower interest income and increasing loan write-offs. However, investment banking and non-interest income help offset these negative trends. JPMorgan Chase & Co. shows the most robust performance among the reviewed banks, while Bank of America and Wells Fargo have much more problems in the credit sector.

The elevated interest rate exerts pressure on financially weak companies, ultimately leading to an increase in mergers and acquisitions, a positive factor for increasing bank income. As a result, despite some weakness in the lending market, the price of JPMorgan’s stock continued to rise as clients bet on the bank’s investment business. The bank’s interest income may increase as the interest rate decreases and is projected to happen this year.