Shares of JPMorgan Chase & Co. (NYSE: JPM) surged more than 5% immediately following the Q4 earnings release. The release aside, the move higher has extremely bullish implications for this market, which could move significantly higher over the next two quarters.
The post-release move takes the stock to an all-time high after rallying solidly for two years. There is risk in the outlook; there always is, but this technical setup suggests a continuation of the market trend and at least 20% upside for investors.
The rally in Q4 2023 was vigorous. It gained 30% in three months and ended with a nice little consolidation. Today’s move confirms support at that consolidation level, turning it into a Bullish Flag. The Bullish Flag is a continuation signal that indicates the prior trend will continue. The best-case scenario is that the rally is at the halfway point, and without a significant correction over the last three months, that seems to be the case.
Targets? In this case, there are two primary factors, including the dollar value of the Q3 rally and the percent gain, which are both substantial. On a dollar basis, the move is worth about $38; on a percentage basis, it is about 28%. Using those figures to project future movement, we get a target of $172+$38=$210 or about 20% to 28% from the post-release price levels.
What could support a 20% increase in JPMorgan's share price? Value and results
Jamie Dimon’s statement and some details within the JPM report point to ongoing economic risk and a shift in consumer account balances that will end in disaster. That shift is declining deposit balances and rising credit, but there is good news, too. The statement and results show robust gains, cash flow and financial improvement that are not expected to end soon.
Trading at 10X this year’s earnings, JPMorgan Chase is a cheap stock for the yield and repurchases, which effectively amount to over 4% annualized yield in Q4. It could easily see a price-multiple expansion in 2024.
The Q4 results were mixed but offset by costs incurred during last year’s financial crisis. The costs relate to acquisitions made during the crisis and will pay for themselves over time. Regardless of the top-line miss, which was slight, revenue is up 11.8% YOY on strength in loans compounded by higher interest rates. Because the consumer shows continued resiliency and the FOMC is on track to keep rates higher for longer, JPM will produce solid NII and margin for the foreseeable future.
NII aided margin in Q4. The company’s GAAP earnings are contracted due to the abovementioned costs but are still solid enough to improve the balance sheet. The adjusted earnings are up 11% in alignment with revenue growth, leading to a cash build, an increase in the tier 1 capital ratio and a $0.113 billion credit reserve release. In this light, the company is well-positioned to withstand whatever shocks come to the financial system and will likely come out of any crisis even bigger than before.
There are clouds on the horizon for JPMorgan
Mr. Dimon continues to believe we are in the most dangerous times. High rates still impact the system, government spending may sustain inflation and spur the FOMC to hike again, geopolitical tensions are at the highest level in decades and rising, and Basel III is in the end game. All else aside, Mr. Dimon says the firm is prepared to make the changes, but the financial system will have repercussions.
“Looking ahead to Basel III finalization, we intend to adapt and manage to the new rules very quickly, as we have shown in the past. However, we caution that such material regulatory changes would likely have real-world consequences for markets and end users.”
Dark Clouds form on the chart
As bullish as the outlook is, there is a risk that JPM stock will struggle to move higher soon. The early pop in the price action was met by sellers who quickly drove it below the day's open. This suggests resistance is strong at the new high but may not last long. The move remains above the prior day's close, and the 30-day moving average on the daily chart, and the weekly chart is less ominous.
A large doji candle on the weekly chart suggests indecision ahead of the market’s next move. There are sellers in the market today, but the trend is up, and the outlook is favorable. Analysts view the stock as fairly valued at the new highs; it is trending higher, and the highest targets have the stock moving up to the $200 to $243 region, aligning with the technical outlook.
