JPMorgan Earnings This Week To Show Economic Headwinds Hurting Sales

• JPMorgan Chase is scheduled to report its third-quarter earnings on Friday before the market opens.
• In this complex economic environment, the results from the Wall Street financial powerhouse are unlikely to offer much of a boost to its sagging stock.
• The lender temporarily suspended share buybacks in July in order to get ready to face potential economic headwinds.

With the third-quarter 2022 earnings season kicking off this week, results from top U.S. banks may show their income from investment-banking operations is drying up fast, while they benefit from the market volatility in stocks, bonds and commodities, boosting their trading income.

In this complex economic environment, the results from Wall Street’s financial powerhouses are unlikely to offer much of a boost to their sagging stocks, which are beset by concerns about a weakening economy, slower lending, and slumping capital markets.

The KBW Bank Index is down about 26% since January as the risk of a prolonged recession dampens the sector's outlook.

KBW Bank Index Weekly Chart

Source: Investing.com

In a week packed with earnings from different sectors, I’ll particularly be focusing on JPMorgan Chase (NYSE:JPM), the largest U.S. lender, to get some insight on the health of U.S. consumers and what lies ahead for the general economy. JPM stock has lost more than a third of its value this year.

According to analysts’ consensus forecast, JPM will report revenues that rose about 8% from the same period a year ago. Earnings per share, however, are expected to see about 20% drop to $2.88 a share, mainly hurt by a significant slump in investment-banking activity.

The uncertain market conditions, which are hindering M&A and IPO deals, have nevertheless been a boon for the bank's trading desks. The analyst consensus calls for JPM’s sales from fixed-income instruments, currencies, and commodities trading to jump 12%.

Citi researchers also expect JPMorgan to boost net-interest-income guidance, which was already raised last quarter, as the bank has been more disciplined in cash deployment relative to peers.

JPM’s diversified business model and its leading position in the many areas of the banking operations are perhaps the main reasons that the lender didn’t see a wave of downward revisions in its earnings estimate, according to data provided by InvestingPro+.

JPMorgan Earnings Estimates per InvestingPro+

Source: InvestingPro+

Despite the depth of its operations, JPM stock is unlikely to get much strength from this week’s earnings, given the economic uncertainty and the risk of a recession that’s keeping investors on the sidelines.

The lender temporarily suspended share buybacks in July to meet higher capital requirements and prepare to face potential economic headwinds. CEO Jamie Dimon has warned of an economic “hurricane”, citing the challenges the Federal Reserve faces as it tries to rein in inflation.

On the conference call, I’ll be keen to learn more about management’s outlook on loan-loss reserves and expected credit losses, as well as the lender’s capacity for resuming share buybacks.

Disclosure: At the time of writing, the author doesn’t own shares mentioned in this report. The views expressed in this article are solely the opinion of the author and should not be taken as investment advice.