JP Morgan Chase & Co (NYSE: JPM) alongside other corporate giants will face the music this week as they are set to release second-quarter earnings for 2020. The timing of the JP Morgan earnings report will be on Tuesday, July 14, 2020. While the investor conference call will commence at 8:30 a.m. (Eastern US). Expectations for J.P Morgan earnings are speculated to under-perform as an alarming number of borrower defaults continue to rise. The EPS expectation for J.P Morgan according to CNN Business research data suggest an EPS of $1.15 and a total of $30 billion in sales. This is in comparison to a brutally low EPS of just $0.78 in Q1 this year. It is wise to note expectations at $1.15 seem a fair and reasonable assumption however investors may underestimate the underlying effects the US economy has had on the banking Goliath.
Table of Contents 1. Expectations vs Reality 2. Will the V shaped recovery effect J.P Morgan earnings? 3. YIG's take on the up-coming earnings announcement
Expectations vs Reality
This earnings season for Q2 results have left investors divided as to how heavily the pandemic has effected these corporations. The Bulls remain optimistic on COVID-19 treatment hopes alongside signs that the economy has bounced back from what seemed to be an inevitable recession. The Bears have aligned there predictions with growing cases of COVID-19, an uncertain election and an earnings season that remains almost impossible to predict.
So what’s the reality? In such times like these, the human behaviour of investors tends to become somewhat more irrational. As an investor, I prefer to base my investments on the fundamentals and innovation of a company itself. Therefore, I do struggle to understand the over-bearing power of optimism in a crisis like this. In my opinion, the earnings for Q2 will give investors the first clear-cut sign of how US businesses are currently coping.
Recent data suggests both US and AUS banks have had continuing issues with defaults and frozen mortgages. For companies such as J.P Morgan, the reality may be a lot worse off than what we may have first thought. However, you cannot rule out the possibility that J.P Morgan have a trick or two up their sleeve to substitute their initial losses. It is in times like these when the highest quality of management must steer the ship away from the iceberg.
Will the V shaped recovery effect J.P Morgan earnings?
The short answer is that the V shaped recovery has impacted J.P Morgan. The V shaped recovery was a strategy put in place by the US Government to fast track the lingering effects of a deep recession. The idea is to pump as much money into the economy during a downturn. This strategy remains an effective strategy assuming COVID-19 can remain controlled. The V shaped recovery will come at a price, especially to beneficiaries.
This consequence of a V shaped recovery is relevant to J.P Morgan because it’s lending branches directly deal with commercial lending including retail and property. This poses a huge exposure of risk to the company as the economic condition remains uncertain. From a shareholders perspective, the earnings report may not phase them. Considering the current economic environment, investors understand companies aren’t expected to post record breaking results. However, the increase in lending defaults and missed payments is a fundamental risk long term investors will be monitoring closely.
The current forecasts for this quarter next year multiply the current EPS expectation by 6 fold. It is for this reason I do not believe long term shareholders will budge too much from Tuesdays announcement. From a micro-economic perspective, J.P Morgan earnings will give investors a better insight into the industry as a whole.
What YIG have concluded from the up-coming events
I am obliged to remind our viewers that this is not financial advice and only my commentary on the topic.
The up-coming earnings report will give investors a better insight into how our largest US corporations are currently travelling in these tough conditions. YIG predict that the COVID-19 immune companies such as Netflix and Tesla will continue to impress investors throughout 2020. The financing and travel industries will portray the true effects of COVID-19 on some of our largest sectors.
YIG will keep our viewers updated throughout the week on earnings reports and what these results will mean for investors.