JPMorgan Stock Is Up 48% YTD, Where Is It Headed?

JPMorgan stock (NYSE: JPM) has gained about 48% year-to-date, compared to the 28% rise in the S&P500 index over the same period. JPMorgan’s peer Wells Fargo (NYSE: WFC) is up by an even stronger 50% YTD. Let’s take a look at JPM’s recent performance and outlook.

JPMorgan outperformed street expectations in the third quarter of FY 2024. The bank reported total revenues of $42.7 billion, a 7% increase compared to the same period last year. Net interest income was slightly higher compared to last year, due to changes in the balance sheet mix, higher credit card balances, as well as wholesale deposits. Non-interest revenue, excluding the markets segment, grew by a strong 17% led by higher asset management fees as well as an improved investment banking performance. However, net income was down by about 2% compared to last year at $12.9 billion on account of higher provisions for credit losses.

Admirably, JPM stock has generated better returns than the broader market in each of the last 3 years.  Returns for the stock were 28% in 2021, -13% in 2022, and 31% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, what’s the outlook like for JPMorgan?

Looking ahead, things could get better. The company’s net interest income could improve in Q4 driven in part by the Federal Reserve rate cuts which started in September. Separately, the election of Donald Trump to the U.S. presidency for a second term is also expected to benefit the financial sector at large. Investors are betting that the Trump administration’s focus on deregulation could translate into a more lenient approach to bank oversight versus the Biden administration. This could help banks boost their revenues, via higher deal volumes, and lending activity, as well as possibly lower compliance costs which could boost profitability. Trump has also been in favor of tax cuts, which could also help the bottom lines of banks such as JPMorgan. Republicans, who generally favor free markets, have won control of the Senate and the House of Representatives as well. Overall, lower interest rates and more political certainty post-election could spur investment banking activity, with increased debt and equity issuances with M&A-related activity also poised to increase.

While JPMorgan remains one of the highest quality names in the banking space, with considerable scale, we believe the stock is overvalued. JPM stock trades at over 2.5x tangible book value (company’s net assets, less goodwill) which is elevated in our view.  Overall, at its current price of $245 per share, JPM is trading about 15% ahead of Trefis’ estimate for JPMorgan’s valuation. 

[1] Returns as of 12/6/2024
[2] Cumulative total returns since the end of 2016

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