JPMorgan Chase & Co. (NYSE:JPM) has been the banking industry’s gold standard for nearly 10 years, but JPM stock could experience a fall from grace fairly soon.
The banking giant is releasing earnings before the opening bell today (Wednesday, April 13). In a surprising departure from recent history, analysts expect JPMorgan’s earnings to shrink from a year before. We haven’t seen the financial sector this hard hit for more than five years.
Low interest rates are finally dragging down the performance of big banks. Many countries have even pushed their sovereign debt yields into negative territory, crushing normal interest rate expectations. It is a tough environment in which to forecast.
Years of aggressive central banking have left investors starving for yield. They are desperate for returns, but most have failed to find an oasis in this desert of a market. It’s gotten so bad that most aren’t even trying anymore. Volatility dropped rapidly in 2016.
All these forces are converging on the financial sector. According to a survey from FactSet, analysts are expecting JPMorgan Chase to earn $1.26 per share for its most previous quarter, a 13% decline from a year ago. (Source: “What to expect from J.P. Morgan Chase earnings,” MarketWatch, April 12, 2016.)
But that’s not even the worst of it. An earlier report from FactSet, one issued at the tail end of 2015, had analysts forecasting $1.54 per share for the quarter. Such a sharp decline in expectations is disturbing, to say the least.
Revenue from net interest is expected to bump up year-over-year, from $11.0 billion to $11.3 billion. But that doesn’t obscure the fact that overall revenue is estimated to fall 5.7%, from $24.82 billion to $23.41 billion.
The only silver lining is that JPMorgan Chase has beaten earnings expectations for the last four quarters. And since the bar is now set so low, maybe they can squeak out a win.