JPMorgan Chase shares fall 5% amid signs of consumer weakness

JPMorgan Chase & Company New York Stock Exchange: JPM Company-level metrics are good, but consumer sector details show the impact of a credit crunch, tight wallets and the first cracks in consumers’ outlook. The company’s Tier 1 ratio and balance sheet are strong; JPMorgan claims a loss-absorbing capacity of more than $500 billion, so it can weather the storm when it arrives.

However, the net release of credit reserves is overshadowed by a build-up of consumer credit loss reserves and nearly doubling credit write-offs. There is no reason to believe that conditions will change anytime soon; Cracks in consumption will certainly grow and impact the entire banking sector.

Jamie Dimon says the market isn’t pricing in enough risk

The FOMC has indicated a rate cut is likely this summer, but that prospect is rapidly deteriorating. The March CPI shows persistently high inflation and acceleration at the headline level, which will surely show up in the PCE report. With only one meeting between now and the crucial one in June, there is not enough time for economic conditions to cool enough to allow a cut without a significant change in activity. As labor markets remain resilient and oil prices are rising, inflation will likely persist at high levels through the summer and prevent the FOMC from cutting rates as quickly and quickly as the market is discounting it.

This is in line with comments made by JPM CEO Jamie Dimon a few days before the release. Dimon, in his annual letter to JPMorgan Chase & Company shareholders, issued an economic warning. In it, he calls on the government to support economic strength, points to consumers spending without worries about the future, sticky inflation, geopolitics and Basel III (which has yet to be fully implemented). His message is that the chances of a soft landing are well below the 70-80% expected by the market, and that market volatility is lurking.

JPMorgan Chase has a solid quarter: shares fall 5%, a good time to buy

JPMorgan reported a solid quarter with continued business growth, amplified by the addition of First Republic assets. The company posted net revenue of $41.93 billion, a gain of 95% year-over-year, beating consensus by 60 basis points. Assets under management grew 19%, average loans increased an adjusted 3%, 16% including First Republic, and deposits increased 2%.

The margin and earrings are also solid. NII fell 4% sequentially, but less than expected, helping drive a 6% increase in net income. Net income increased 44% sequentially and is expected to remain strong, even as rate normalization is expected to continue. The key takeaway is that the company’s balance sheet is as good as ever and the Tier 1 capital ratio of 15% is well above requirements.

The cash flow and balance sheet allow for significant capital returns and increases can be expected this year. The dividend is worth about 2.4%, with the stock price correcting and reliable given the company’s health and government oversight. Repurchases in the first quarter were worth $2 billion and accounted for about 35% of net income, including distributions.

JPMorgan Chase stock price returns to fair value

JPMorgan’s stock price has been supported and driven higher by analysts over the past year. The caveat is that the price action beat consensus and traded above the average target prior to the release. The 5% post-release correction was enough to bring the market back to the analyst’s target fair value and trigger early buying. If buying continues during the open session, the stock will likely rebound strongly and increase in value this year.

However, JPM stock price action is now below the 30-day moving average and may not be able to recover quickly. The market is also 10% above the 150-day moving average, suggesting the potential for a double-digit correction. If this market fails to recover quickly, the chances of a significant correction will increase every day.

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