JPMorgan Chase & Co. (NYSE: JPM) shows a Rising Wedge Pattern. Like all technical patterns, it is never 100% correct but often signals a bearish reversal in the underlying market. A rising wedge occurs at the end of an uptrend and consists of two rising but converging trend lines that end at a peak.
The question is which way the market will break; today, it is to the downside. The Q2 results are solid, and the outlook is steady, but risks are mounting, and this market is extended. JPM shares are up more than 100% from the 2022 lows and 55% from the 2023 lows, with divergence and bearish signals in the charts. The takeaway is that this financial stock is set up for a significant correction and could fall 10% to 15% by fall.
JPMorgan Stock Falls on Rising Costs and Inflation Outlook
JPMorgan had a solid quarter, with revenue growing 21.5% to over $50 billion. However, the strength is offset by numerous one-offs that sap much of it. The leading cause is JPM’s investment in Visa, which paid off a net $7.9 billion or about $2.04 in EPS. That aside, the company exhibited strengths in most areas of its business, driving robust cash flow and earnings. In investment banking, fees rose by 50% on increased activity and market share gains. In community banking, average deposits are down, but client assets are up, partly driven by first-time investors. Card loans also drive business up 12%, as its asset management with fees up 13%.
Margin is good but, again, offset by one-offs that sap its strength. The company reported increased charge-offs and a net build of credit reserves to compound the losses of $546 million in net investment securities. The takeaway is that the $4.40 in adjusted earnings is sufficient to keep the company well-capitalized, almost too capitalized. However, it fell $0.11 short of the MarketBeat.com reported consensus, and the outlook is for growth to slow and inflation to remain sticky.
JPMorgan doesn’t provide much guidance, but CEO Jamie Dimon has much to say that impacts the outlook. The most pertinent is his view on inflation, which suggests that inflation will remain sticky and interest rates will be high. Drivers of this problem include high sovereign debt levels, government spending on infrastructure projects, infrastructure needs, and remilitarization. Additionally, Basel III is still in play and comes with unknown ramifications once completed.
The upshot for investors is that JPM is still in a solid position. A correction today will likely result in a buying opportunity later this year due to the company’s financial position. The business was mixed regarding analysts' expectations and concerns related to consumer health and credit levels, but the balance sheet is still a fortress. The Tier 1 capital ratio improved to 15.3%, well above requirements, and the loss-absorbing capacity exceeds the need.
Analysts Consensus Says JPM Stock is Fairly Valued
The analyst sentiment has supported the JPM market all year, but the upside is limited without fresh upgrades and price target revisions. As it is, the twenty analysts covering the stock rate it as a Moderate Buy but see it moving about 5% lower at their consensus estimate. Recent updates have the stock trading at the high end of the range, but that only gives a 10% to 15% upside, which isn’t attractive enough given the potential for a decline in the share price.
JPMorgan Chase stock is set up to fall, but inventors should take this news with a grain of salt. The correction will likely be a healthy bull-market selloff rather than a precursor for a bear market and will set up a buying opportunity. The question is how long the correction will last and when the buying signal will be fired. Based on the results, cash flow, capital return, business outlook, and analysts' support, the answers will likely not be too long and reasonably soon unless there is a significant change in the economic fundamentals. The only expected change is an interest rate cut that should help sustain the business, if not help it grow.
