CEO Jamie Dimon made several bullish comments about these categories in his conference call. Most notably, he said that currently there is $2 trillion sitting in consumers' checking accounts that should be supportive of consumer spending and economic growth especially once conditions fully normalize.
Inside the Numbers
In Q1, JPMorgan reported earnings per share of $4.59 vs $3.10 per share expected by analysts. Revenue came in at $33.1 billion which beat consensus expectations of $30.5 billion. Some of the catalysts for this beat were reducing its loan loss reserves by $5.2 billion and strong performance from its trading division which topped expectations by $1.8 billion.
The loan loss reserve is due to the economy being better than expected as an expected spike in defaults and bankruptcies has not materialized in part due to the government's efforts and also the economy has performed better than expectations. The company had set aside more than $10 billion in total loan loss reserves to ensure that there would be no repeat of 2008 when a weakening economy caused banks to pull back on lending which exacerbated the downward spiral.
Fixed-income trading generated $5.8 billion in revenue which was a 15% increase from last year's quarter. Equities were the bright spot with a 47% increase to $3.3 billion. The company also benefited from a strong M&A market with investment banking revenue increasing by 222%.
The one downbeat note was that loan demand was weaker than expected, although the company expects it to improve as the economy returns to normal. Overall, the company was quite optimistic in its outlook for the coming year. CEO Dimon said, "With all of the stimulus spending, potential infrastructure spending, continued quantitative easing, strong consumer and business balance sheets and euphoria around the potential end of the pandemic, we believe that the economy has the potential to have extremely robust multi-year growth."
Stock Price Outlook
JPMorgan is up more than 100% since the March bottom. Over the past six weeks, the stock has been range-bound between $145 and $150. JPMorgan's stock is essentially a proxy for the U.S. economy given its wide exposure in terms of geography and to Wall Street, mortgages, small businesses, and consumer finance.
Therefore, given the improving economic outlook, considerable stimulus in the pipeline, and vaccinations, it's likely that the stock will break higher from this range. As the economy improves, long-term rates will have upwards pressure, while the Fed is keeping rates at zero until next year at the least. This means that banking will get more profitable which should be another positive contributor to earnings growth.