Dow component JPMorgan Chase and Co. (JPM) could trade lower in coming weeks after CEO Jamie Dimon warned the banking giant will book about $6 billion in second quarter trading revenue, down 38% over the same period in 2020. Citigroup Inc. (C) CFO Mark Mason reiterated this bearish theme, warning about a 30% decline. Windfall revenue in these divisions bolstered profits during the pandemic, keeping a floor under the banking industry’s equity prices.
Mixed Catalysts Heading Into Third Quarter
Federal Reserve Chairman Jerome Powell eased investor anxiety on Wednesday, declaring the U.S. economy had recovered faster than expected, setting the stage for interest rate hikes that have been off-the-table during the pandemic. Higher rates steepen the spread between the prices that banks pay for capital and the prices paid by corporations seeking loans, improving profits. However, higher rates can also curtail lending volumes, especially after two or three hikes.
Dimon ended his comments on an upbeat note, reminding listeners that “The quarter last year was exceptional. The last quarter is exceptional. This quarter is what I call more normal…which is still pretty good.” Meanwhile, Mason examined reasons for the surge, noting “If you think back to the second quarter of 2020, at least for Citi, we were looking at Markets revenues back then that were up 50%. We had seen record levels of debt issuances from our clients.”
Wall Street and Technical Outlook
Wall Street consensus on JPMorgan remains bullish despite mixed catalysts, with an ‘Overweight’ rating based upon 15 ‘Buy’, 2 ‘Overweight’, 6 ‘Hold’, and 1 ‘Underweight’ recommendation. In addition, 3 of 27 analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $110 to a Street-high $200 while the stock is set to open Thursday’s session more than $15 below the median $171 target.
A JPMorgan uptrend topped out at 141 in January 2020, ahead of a steep pandemic decline. The subsequent uptick reached the prior high in January 2021, yielding a February breakout that added 26 points into early June’s all-time high at 167.44. The pullback since that time has sliced through the 50-day moving average while accumulation has dropped to a 4-month low. This price action raises odds for downside that could offer a buying opportunity in the low 140s.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.