Earnings season has kicked into high gear, with reports from major US banks being released on Friday and more anticipated in the upcoming week. Notably, two specific stocks have emerged as potentially profitable investment opportunities indicating a bullish uptrend in the industry.
JPMorgan Chase (JPM) posted record net interest income and beat analysts’ earnings expectations when it reported third-quarter results. Wells Fargo (WFC) and Citigroup (C) also topped Wall Street estimates. They are the first big banks to report quarterly results, with Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) following next week.
JP Morgan Chase & Co (JPM)
JP Morgan Chase & Co (NASDAQ: JPM) reported robust third-quarter earnings, surpassing analysts’ expectations, driven by increased net interest income and its acquisition of First Republic Bank in May. The bank’s profit climbed by 35%, or 24% when excluding First Republic, reaching $13.2 billion.
This translated to earnings of $4.33 per share on revenue of $39.9 billion. Analysts polled by FactSet had anticipated JPMorgan to post earnings of $3.95 per share on revenue of $39.6 billion.
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JPMorgan’s CEO, Jamie Dimon, expressed satisfaction with the results but also emphasized the need for caution due to the challenging global economic and geopolitical landscape, including quantitative tightening and conflicts in Ukraine and Israel.
He noted,
“This may be the most dangerous time the world has seen in decades. While we hope for the best, we prepare the Firm for a broad range of outcomes so we can consistently deliver for clients no matter the environment.”
Despite economic challenges, JPMorgan is managing well. Net-charge offs at the bank increased to $1.5 billion, approximately double compared to the previous year. However, the bank also reported a net reserve release of $113 million, resulting in total credit costs of $1.4 billion.
The chart analysis below indicates a potential shift from a prior downward trend to an upward one, primarily driven by the EMA 50’s (purple line) position and the presence of upward-pointing arrows from the latest highest points. This suggests a changing market sentiment towards a more bullish outlook.
The fact that the SMA 100 (aqua line), representing a longer-term trend, is at the top of the chart, indicates relative long-term strength. The two arrows pointing upward from the latest highest point offer a bullish signal, indicating a potential shift toward an upward market movement.
JPMorgan has been relatively resilient to the impacts of higher-for-longer interest rates, partly due to its favorable acquisition of First Republic Bank. The bank’s stock has performed positively, with a 9% increase in share value this year, in contrast to the 24% decline in the KBW Nasdaq Bank Index (BKX).
Wells Fargo (WFC)
In the Q3 financial report, Wells Fargo Company (NASDAQ: WFC) revealed an 8% year-over-year (Y/Y) increase in its net interest income, reaching $13.1 billion, attributed to higher interest rates. The company’s earnings per share (EPS) stood at $1.48, exceeding both the consensus estimate of $1.24 and the previous year’s figure of $0.86.
For the third quarter, revenues experienced a substantial 21% Y/Y boost, reaching $20.86 billion, surpassing the consensus estimate of $20.11 billion. Additionally, the company witnessed a 61% Y/Y surge in profits, totaling $5.77 billion.
Wells Fargo’s CEO, Charlie Scharf, attributed this growth to increased net interest and noninterest income, reduced operating losses, and the resilience of the economy, despite the slowing pace that negatively affected loan balances and charge-offs.
Looking ahead, Wells Fargo expects a 16% rise in net interest income for FY23 compared to FY22’s $45.0 billion, an increase from previous guidance of approximately 14%. The company anticipates the fourth quarter of 2023 to be around $12.7 billion.
In response to this positive financial report, Wells Fargo’s shares increased by 2.37% to $40.68 in premarket trading yesterday.
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