The report of the financial giants starts with JP Morgan
How the economy will perform for the rest of 2020 is one of the main questions, especially for investors and stock market traders. Could the better-than-expected reports from most of the USA500 companies in the second quarter be followed by good Q3 reports too?
Revenue reporting season arrives in earnest this week, starting with the financial giants. JPMorgan (NYSE: JPM) and Citigroup (NYSE: C) both release their reports on Tuesday, followed by Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC) and Morgan Stanley (NYSE: MS) later in the week.
JPMorgan (JPM), the largest US bank with $308.417B in market capitalization (Yahoo Finance), has always been at the top of investors’ list for the financial services industry. At the current price of $101.20, its stock has fallen by almost 29% in 2020 due to the coronavirus epidemic crisis.
In the third quarter, JP Morgan reported EPS (earnings per share) significantly higher than expected ( $ 0.04 ), while market expectations were $ 1.34 and surprised the market by 2.99 %. (Check the figure below from Nardak)
On Tuesday, October 13, the financial quarterly report ending in September 2020 will be released. According to research by Zacks Investment Consulting, based on 9 analysts’ forecasts, the EPS consensus forecast for this quarter is $2.26. The EPS report for the same quarter last year was $2.68.
The net interest rate is still 0 to 0.25% and there is no plan by the Federal Reserve to raise interest rates, at least in the short term, even if some FOMC speakers are against the negative rate. This even seems possible, especially if Republicans win the Nov. 3 election.
In the figure below from Finviz.com, you can see that in the last three months, financial stocks, after energy (which is still losing value) and communications services, along with health stocks, both improved by 7.58%, the lowest recovery rate.
What parts of the report should be given the most attention?
Net interest rate is one of the most important parts of this quarterly report, as the Federal Reserve cut its key lending rate from 2% to zero in March, and this directly affects the bank’s income because fewer people are interested in keeping their cash in banks and most are encouraged to transfer it to other markets, however, if banks can give them trading in stock markets or investing in commodities, they can reimburse part of the losses from the trading and investment commissions.
On the other hand, in this period, loans play a very important role, however, it is a “double-edged sword”. While loans and credits of government stimulus packages are made through banks, which can help them increase their income, due to the epidemic crisis, many jobs have been lost and people declared bankrupt and are unable to pay. Interest payments are not the principal of loans, so bad loans, in terms of number and amount, will also be in the spotlight.
Technical overview
As we can see in its weekly chart, after the rapid recovery of Q2, in the third quarter, the neutral move is repeated between $95 and $103. The share price closed the quarter at $96.36, meaning only 2.36% growth. The current price of $101.20 is 38.2% of its Fibonacci level. A positive report will help push the stock price possibly higher to the first resistance at $108.70 (50% Fibonacci level) and then 61.8% Fibonacci level at $116.20. A negative report could push the price towards $91.75 (23.6% Fibonacci and the first support level). The current level, although above $91, could suggest more strength to the bears for lower prices, but with the next possible stimulus packages, lower prices will be less likely.
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Ahura Chalki
Market Analyst
Hot Forex
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