Q2 earnings season officially starts this week and bank earnings will tell us a lot about the economy. Here are our previews for two big names, JP Morgan and Morgan Stanley.
JP Morgan Chase & Co (NYSE:JPM)
Despite the prospects of rising interest rates, shares of JPMorgan Chase have gotten punished over the past seven months. And that’s because interest rates are not the only metrics investors are watching. Earlier this year, the yield curve inverted, which typically indicates a recession is on the horizon. Inflation is also an issue which has already caused a noticeable slowdown in several areas of the economy.
JPMorgan Chase, the largest bank in the world by market cap, has shown it can navigate these tough headwinds to return value to shareholders. At the current valuation, JPMorgan stock is priced at a forward P/E ration of 9.5 which is below its five-year and ten-year average go 12.5 and 11.4, respectively. In other words, the market has become too bearish. The management team has a solid reputation for execution and capital deployment. Combined with its 2.50% dividend yield, which has grown at an average of almost 8% over the last five years, JPMorgan looks like a solid opportunity ahead of earnings.
Morgan Stanley (NYSE:MS)
Morgan Stanley’s second-quarter 2022 earnings are expected to have benefited from solid trading performance. Like the last quarter, wherein market volatility and client activity were unexpectedly robust. The overall trading business in the second quarter was a bright spot as well.
The market volatility that started in February-end persisted in the second quarter. The Russia-Ukraine conflict continued to disrupt supply chains, leading to global ambiguity. Also, fears of an economic slowdown, higher inflation and rising interest rates worldwide resulted in heightened client activities and increased trading volume.
These developments led to extreme volatility in equity markets (with the S&P 500 Index witnessing the worst first-half performance in more than 50 years) and other asset classes, like commodities, bonds and foreign exchange. Hence, Morgan Stanley is likely to have recorded a substantial improvement in trading revenues this time.
Both companies have had their stocks under pressure this year. JPM and MS are down from highs 35% and 32%, respectively.