Did J.P. Morgan Just End the Market’s Recession Fears?

JP Morgan Chase CEO Jamie Dimon, who made $31 million last year in compensation, says profits are no longer the goal of America's top corporations.
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J.P. Morgan (NYSE: JPM) started earnings season with a bang this morning, beating out analyst estimates by a wide margin. The company’s third-quarter revenues grew by 8% to a record-setting $9.1 billion. Earnings per share (EPS) clocked in at $2.68, surpassing the expected $2.45.

The market surged as a result.

The Dow rocketed 250 points upwards, while the S&P and Nasdaq Composite gained 1%.

“The consumer remains healthy with growth in wages and spending, combined with strong balance sheets and low unemployment levels,” said Jamie Dimon, J.P. Morgan CEO, in the earnings guidance.

“This is being offset by weakening business sentiment and capital expenditures mostly driven by increasingly complex geopolitical risks, including tensions in global trade.”

But that’s not all; UnitedHealth (NYSE: UNH) got in the action as well. EPS exceeded analyst estimates by 13 cents per share thanks to the company’s growing pharmacy revenues. Better yet, UnitedHealth upgraded its guidance for the rest of the year, as corporate leadership expects an impressive Q4.

Johnson & Johnson reported strong financials too, buoyed by a roaring pharma business. Adjusted EPS was $2.12 vs. an expected $2.01 alongside improved full-year guidance.

“The early reporters must not have gotten the memo from market bears stating that we are in an earnings recession,” commented Nick Raich, CEO of The Earnings Scout.

It’s a massive shift from how the market was feeling just a few weeks ago. A recession was near, and the trade war was going to ruin the economy.

But based on the numbers out of J.P. Morgan, UnitedHealth, and others, it seems that investors could be in for yet another robust earnings season. Analysts predominantly thought Q3 was going to be a bloodbath.

As of today, that outcome’s looking far less likely.

But some analysts, like Ed Yardeni, president and chief investment strategist at Yardeni Research, believe that today’s “earnings beats” could simply be a result of overly bearish sentiment.

“[Analysts] tend to overshoot on the pessimistic side in the weeks before earnings seasons. That, in turn, means that there is often an earnings’ hook’ to the upside as actual results beat expectations,” he said.

Even then, the earnings season might only get better from here. Goldman Sachs (NYSE: GS) CEO David Solomon just said that his bank’s rollout of the Apple Card was “the most successful credit card launch ever.”

Apple (NASDAQ: AAPL) is set to report earnings on October 31st, and if their new credit card project is deemed a success, AAPL shares could propel the market further upwards. Goldman’s Q3 financials came in below expectations, but Solomon says it’s for a good reason.

“Since August, we’ve been pleased to see a high level of consumer demand for the product. From an operational and risk perspective, we’ve handled the inflows smoothly and without comprising our credit underwriting standards.”

He continued, adding that, “these investments draw on our returns in the short term, but are critical to expanding our capabilities and our competitive position.”

So, when Goldman Sachs, a bank that just reported disappointing numbers, can boast about the future – even in a near-zero rate world – you know that the “going is good.”

Whether or not that can stretch into 2020 is another matter. But from where corporate earnings stand today, it appears as though the recession talk may finally die down.

And if it does, get ready; because new all-time highs are likely waiting just around the corner.

 

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