Bank stocks have been one of the market's bright spot in recent weeks, contrary to weakness in growth and tech stocks. For much of the past decade, bank stocks have underperformed due to a flat yield curve and low rates. Now, these circumstances are reversing as the yield curve has steepened, and short-term rates are rising with expectations of 3 to 4 hikes next year. Prior to JPMorgan's earnings release, the Financial Select SPDR Fund
Inside the Numbers
In Q4, JPMorgan reported $3.33 in earnings per share, which was 14% lower than last year but still beat expectations of $3.01 per share. Revenue also topped expectations at $30.35 billion, beating analysts' estimates of $29.9 billion which was essentially the same as last year's Q4.
The company noted that it received about a $0.47 per share increase (about $1.8 billion) to its bottom-line as it released some loan loss reserves that never materialized. This has been a constant tailwind for bank earnings over the past year, however, it's going to be less impactful going forward.
However, the major factor in the stock's decline was CFO Jeremy Barnum's remarks that management expected higher expenses, Wall Street revenue to moderate, and miss the firm's target for return on capital. Overall, it sees expenses increasing by 8% in 2022 due to inflationary pressures and $3.5 billion in investments.
The company does see some benefit from rising rates and loan growth which has picked up in recent months. Net interest income is expected to increase by $5.5 billion to $50 billion.
Overall, JPMorgan's results reflect that it's one of the best banks in the world and gives investors exposure to Main Street and Wall Street. Despite this drop, it continues to be attractive with a forward P/E of 12 and a dividend yield of 2.5%. Further, the macro environment should continue to improve as loan growth increases, rates rise, and the economy continues to gain steam.