How will US Bank earnings move the tone of the Q2 earnings season?
US Q2 earnings season began this week with major banks. Both JPMorgan Chase and Morgan Stanley will report their earnings results before the US market opens on Thursday, July 14. Share prices of these large US banks fell nearly 30% from their January highs due to a sharp drop in investment banking revenue. However, rising interest rates in the first half could provide some positives to the profit margins of lending businesses, which could still sustain overall revenue growth.
Higher interest income expected for JPMorgan Chase in the backdrop of rising rates
Despite the bleak economic backdrop, large lenders have indicated that a rising interest rate environment coupled with strong credit demand from borrowers is likely to translate into higher loan income. It is expected that banks with a higher interest in lending such as JPMorgan Chase and Citigroup may benefit from the rising rate environment. According to Nasdaq forecast, JPMorgan Chase’s earnings per share for the second quarter will be about $2.90, or a 30% decline year over year, compared to a 42% decline in the first quarter. Projected revenue is approximately $32 billion, or a 5% decline versus a 7% increase in the prior quarter. In general, JPMorgan Chase, the largest US bank by assets, is expected to report a stronger performance result for the second quarter than for the first quarter.
Morgan Stanley may suffer from continuation of declining investment banking revenue
Conversely, banks that have the majority of the business share in investment banking may suffer from a continuation of the decline in company deals. Therefore, Morgan Stanley may face a further slowdown in both earnings and revenue due to a larger investment banking business division, which is adversely affected by the company’s sluggish pipelines of IPOs and acquisition deals. However, its other two major divisions; Soft investment can overcome some of the vulnerabilities posed by banking activities through a background of strong trading activity in volatile market conditions, including asset management and investment management. Morgan Stanley’s second-quarter earnings per share would be $1.62, or 14.3% year over year, compared to an 8.4% decline in the first quarter, according to Zacks Investments. Revenue is expected to be down $13.87 billion, or 6% from a year ago, at the same contraction pace as was reported in the first quarter.
Major Downtrend Phase of JPM Morgan Chase Has Started Showing Signs of Exhaustion
Source: CMC Markets as of 11 July 202 (Click to enlarge chart)
The price actions of liquid tradable financial instruments such as equities do not move in a single upward or downward movement, but in cyclical waves, where market participants’ sentiments form as a result of short-term multi-week countertrend movements followed by successive multi-month movements. Trend moves can be punctured. Adjust to the changing narrative by a mix of macro- and firm-based fundamental factors.
Using integrated technical analysis, we can attempt to understand whether a significant trending phase has reached an exhaustion/inflection zone that increases the odds of the next countertrend move. JPMorgan Chase (JPM) price action printed from its current all-time high of 172.95 on October 25, 2021 to a low of 109.30 (-36.8%) on July 5, 2022 in a major downtrend phase reinforced by bearishness classified as. There is a breakdown below the 200-day EMA and major ascending channel support from the March 19, 2020 lows.
The recent decline in JPM price reached a critical support area of 110.48/105.85 defined by a confluence of elements; A set of graphical gap-up support and Fibonacci extension levels for November 6th/November 9th 2020. In conjunction, its downside momentum has also begun to turn lower since 16 June 2022 as price action has begun within a bullish reversal “descending wedge” configuration, seen in its oversold zone on the daily RSI oscillator This is coupled with a bullish divergence signal.
Look at 105.85 major medium-term key support and break above 123.90 to 133.80/143.90 resistance area (a pull-back area of 200-day moving average and former major ascending channel support to retest from March 19, 2020 lows) ) However, a break below 105.85 invalidates the countertrend rebound scenario to continue the impulsive down move sequence of its major downtrend phase towards the next support at 90.80.
