Major US banks slide despite record JPMorgan Chase result

Equities 4 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  Equities are trading lower today on a mix of disappointment over Biden's stimulus plan and increased Covid-19 restriction across many countries. The negative sentiment has also impacted US banks despite strong results from JPMorgan Chase and a positive outlook. Earnings from Citigroup and Wells Fargo were a disappointment, but despite of today's reaction we maintain our positive view on US banks based on our reflation theme for 2021.


US equities are lower today driven weak sentiment into the weekend on more Covid-19 restrictions in several countries and slow pace of vaccination across the world. The big Biden $1.9trn stimulus plan should have been a major boost to the equity market but instead consensus has arrived at the point that it will end up much smaller in size. While this first stimulus plan for the new administration might end up being smaller the stimulus is not over as the slowdown in the US economy warrants more fiscal impulse which the US Congress will realize over the coming months. In other words, a lot of selling today is most likely risk reduction into the weekend and technically driven instead of a logical discount of the future which holds more stimulus until the economy is out of the woods. So today the reflation trade is not doing well.

Today is also the first major Q4 earnings release day with four major US banks reporting earnings. JPMorgan Chase delivered record quarterly net income of $11.9bn (47% y/y increase) up significantly from $2.59bn in Q1 driven steadily by releasing loan loss reserves as the global fiscal stimulus has avoided the worst-case scenario for banks on their loan portfolio. JPMorgan Chase is also lifting its 2021 guidance on net interest income by around 2% in a sign of a more upbeat outlook for the economy and the yield curve. Despite the positive result JPMorgan Chase shares were pulled down by the overall market trading 2.5% lower in early trading.

Source: Bloomberg

Citigroup could not live up to the stellar result of JPMorgan with FICC (fixed-income, currencies, and commodities) trading unit missing estimates and EPS down 18% y/y that nevertheless still beat estimates. Shares are down 4% in early trading. Wells Fargo was the other major US bank that reported earnings today and here investors are disappointed sending the shares down 7% despite beating on EPS. However, net revenue disappointed and has generally a less rosy outlook compared to JPMorgan Chase with a slow start to 2021 according to the CEO. Wells Fargo is rumoured to be considering selling its asset management business as Wells Fargo has struggled for years to make a strong business in the investment management and capital markets industries. Despite today’s setback for US banks we maintain our positive outlook based on our reflation theme for 2021.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.