JPMorgan To Trade Sideways In 2022
A mixed report from JPMorgan Chase (NYSE: JPM) has shares down hard in early trading and they may move lower. The takeaway is that institutional support for JPMorgan remains high and will likely support price action at the bottom of a trading range that has been in place all year. The range between $150 and $170 is important because it is being driven by the institutions and we see this range dominating price action for the near to short-term.
Institutional activity in 2021 and the first two weeks of 2022 is equal to $52.84 billion or a little more than 10.5% of the market cap with shares trading at the top of the range. The takeaway here is that data from Insidertrades.com shows the buying and selling were almost perfectly matched with profit-takers selling $26.82 billion worth of the shares and inflows topping $26.05 billion. The difference is a net $0.76 billion in selling or about 0.15% of the market cap, not enough to cause a downtrend but a bearish bias however small.
Mixed Results Sap Bullish Sentiment In JPMorgan
The Q4 results are good but not great and point to near-term headwinds for the company. The revenue of $29.26 billion fell -3.0% YOY and missed the consensus by 175 basis points on weakness in core banking segments. Both the community and commercial banking segments saw YOY declines that were offset to some degree by strength in the investment branches. Internally, average loans are up 8% YOY and average deposits are up 17% YOY which both point to leveraged gains when activity picks back up.
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Moving down to the earnings, the company beat on the bottom line with earnings of $3.33. At first glance, this suggests wider margins but there is a caveat. The company had lower charge-offs than were anticipated and was able to release more of its capital reserves than expected. This netted $1.3 billion in bottom-line earnings or more than enough to offset the revenue weakness. When adjusted for reserve released the EPS of $2.86 is well below the consensus estimate.
The good news is that these former earnings are now available to fuel the buybacks and dividends. The company returned $4.9 billion in capital to shareholders in the form of a $1.00 per share dividend and $1.9 billion in repurchases. Increases to the dividend and buyback plan are not expected until after the next stress test which is due out in late spring 2022. With a Tier-1 capital ratio of 13.0%, we don’t think JPMorgan Chase will have any problem passing. The last increase was worth 11% in increased yield to shareholders.
The Technical Outlook: Range-Bound JPMorgan Chase Retreats To Support
Shares of JPMorgan Chase have been range-bound all year due to the rotation among institutional investors. The institutional activity has been light so far this year and may point to a break-out from the range but it is too soon to call that one. In the near term, it looks like the stock is going to open with a large gap lower, in the range of 5.0%, and below support at the midpoint of the range. If the price can not get over the midpoint of the range today we see it moving lower and testing for support at the $155 level and possibly lower. A break below the $150 level would be bearish but we don’t see that happening with all the institutional support. The FOMC is about to start hiking interest rates and that is going to put a might tailwind into the banking sector.
Companies in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|JPMorgan Chase & Co. (JPM)||$168.23||-0.1%||2.38%||10.64||Buy||$177.65|