JPMorgan Testing 52-Week Low After Earnings Shortfall

Dow component JPMorgan Chase and Co. (JPM) is trading lower by more than 3% in Wednesday’s pre-market session after missing Q1 2022 earnings-per-share (EPS) estimates. The commercial banking giant posted a $2.63 per-share profit on a 4.8% decline in revenue to $30.72 billion. Net income rose 7% but the bottom line was impacted by the unwinding of COVID loans, which have added to portfolio profits since the second half of 2020.

Geo-Political Headwinds

Underwriting income has dropped due to risk aversion generated by the Ukraine – Russia war, which has also put stress on the world banking system. A return to national interests, along with a shift away from globalization, has made big deals less palpable, especially with soaring inflation. On the flip side, improving overnight spreads have allowed commercial banks to earn more on their loans and the highly liquid U.S economy is firing on all cylinders, with few signs of growing delinquency rates.

Even so, JPMorgan Chase added $902 million to the loan reserve fund, now pressured by “increasing probability of downside risks due to high inflation and the war in Ukraine as well as accounting for Russia-associated exposure in CIB and AWM, and $582 million of net charge-offs”. The bank posted a Q1 loss of $524 million from commodity and Russia exposure, raising concerns that hundreds of other public companies will follow suit this earnings season.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 12 ‘Buy’, 2 ‘Overweight’, and 12 ‘Hold’ recommendations. In addition, two analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $125 to a Street-high $200 while the stock is set to open Wednesday’s session just $3 above the low target. Look for analyst downgrades and lower targets to follow in coming sessions.

JPMorgan Chase sold off to a 3-year low in March 2020 and rallied to the prior high at 141.10 in January 2021, ahead of a February breakout that lost momentum above 160. Rally attempts into October failed, yielding a topping pattern that broke to the downside in January 2022.  February and March bounces to new resistance failed, while today’s decline has landed on the March low near 127. This level is unlikely to hold, favoring downside that tests stronger support in the low 120s.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.