Week Ahead | JP Morgan Kicks off Earnings

15 October 2018

Global markets rose on Friday after a week of blistering losses as investors returned to technology and other growth sectors, but gains were hampered by ongoing worries about US-China trade tensions and rising interest rates

Several major banks kicked off the US third-quarter earnings season on Friday, with generally upbeat results from the likes of JPMorgan Chase and Wells Fargo among the first to report. It will be an interesting earnings season, as generally during reporting periods investor focus shifts back towards company fundamentals rather broader macroeconomic issues. Corporate earnings growth is expected to remain strong in the third quarter amid a very healthy economic backdrop.

We would also note that JP Morgan and Banking stocks generally benefit from higher rates (all else equal higher rates improve net interest margins and the banks interest income on loans). Hence, if longer term rates continue to rise, the Banks are likely to outperform as a sector, in our view.

 

Stock in Focus: JP Morgan (JPM:NYSE)

JPMorgan helped the third-quarter earnings season get off on the right foot by announcing results that beat expectations on the top and bottom lines.

Looking at some of the detail, revenue grew 5.2% to $27.8 billion and earnings per share increased 33% to $2.34. Analysts were expecting earnings of $2.25 per share on revenue of $27.5 billion. Net interest income grew 7% to $14.1 billion, thanks to higher interest rates, as well as loan and deposit growth. 

Chairman and CEO Jamie Dimon sounded a positive note on the state of the economy. "JPMorgan Chase delivered strong results this quarter with top-line growth in each of our businesses, demonstrating the power of our platform," he said in the press release. "The U.S. and the global economy continue to show strength, despite increasing economic and geopolitical uncertainties, which at some point in the future may have negative effects on the economy".

We have a BUY recommendation on JPM.

Members should look out for a full update on JPM to be released in our weekly report.

 

Australia & New Zealand Market Movers

The Australian share market was a touch higher on Friday (ASX 200 index +0.20%) after its worst trading week in almost three years. The Banks and Royal Commission continue to dominate headlines, as Westpac has admitted that it was the unnamed bank cited as considering passing on a bank levy to its customers instead of allowing its shareholders to soak up the drop in profit margins. Shares in Fairfax Media and Nine Entertainment have slumped ahead of their planned merger after Fairfax flagged a five per cent drop in revenue.

 

The New Zealand market snapped its October losing streak on Friday (NZX 50 index +1.40%) with A2 Milk Co and blue-chip stocks such as Spark New Zealand, Mercury NZ and Auckland International Airport driving the recovery. A2 led the market higher on the second largest volume, rising 9.4% to $9.89 with 1.7 million shares changing hands. In stock news, Danish cooperative DLF Seeds' $434 million cash and debt bid to buy PGG Wrightson's seeds unit is fair to minority shareholders, independent advisor KordaMentha says. Wrightson's 12,059 shareholders will vote on the deal at a combined annual and special meeting on Oct 30 in Christchurch. PGW shares jumped +3% on Friday.

 

 

3 Things Markets Will be Watching this Week

1.             US corporate earnings season for the 3rd quarter gets underway.

2.             Trade related news-flow is likely to continue to feature in headlines.

3.             Minutes from the last US Federal Reserve Meeting are released on Thursday morning AU/NZ time.

 

Have a Great Day

Global markets rose on Friday after a week of blistering losses as investors returned to technology and other growth sectors, but gains were hampered by ongoing worries about US-China trade tensions and rising interest rates

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