Comparing the trend in JPMorgan’s (NYSE: JPM) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 35% once fears surrounding the coronavirus outbreak are put to rest. Our conclusion is based on our detailed comparison of JPMorgan’s performance against the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did JPMorgan Stock Fare Compared With S&P 500?
The World Health organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and March 27th, JPM stock has lost 31% of its value (vs. about 24% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.
JPMorgan’s Stock Has Fallen Considerably Because The Situation On The Ground Has Changed
Businesses are not investing, with a shift in focus from long-term to near-term survivability. On the same lines, there is a drop in consumer demand as people are refraining from discretionary expenditures. The economic downturn could cause significant losses for businesses and individuals alike, impacting their loan repayment capability. This could result in sizable losses for JPMorgan, as it has a substantial loan portfolio of around $464 billion in consumer loans (as per 2019 data) and $208 billion in commercial loans. Further, as the economic condition deteriorates, it would become expensive for the bank to attract funding, negatively impacting all its operations. Similarly, the lower market activity would mean a drop in investment banking as well as capital raising deals – resulting in a decline in advisory & underwriting fees.
However, the bank could profit due to its significant presence in the sales & trading business. The company generated around 19% of its revenues from its sales & trading business in 2019. Given the extreme level of volatility in equity & debt markets over recent weeks, JPMorgan is well-positioned to report strong results for its securities trading arm, which should help mitigate the negative impact of weak economic conditions on its other operating segments.
We believe JPMorgan’s Q1 and Q2 results will confirm this reality with a drop in both consumer banking and investment banking revenues, partially offset by growth in sales & trading. If signs of coronavirus containment aren’t clear by the April Q1 earnings timeframe, it’s likely JPMorgan’s stock, along with the broader market, is going to see continued drop when results confirm palpable reality.
But JPMorgan Stock Witnessed Something Similar During The 2008 Downturn
JPM stock declined from levels of around $34 in October 2007 (the pre-crisis peak) to roughly $18 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 48% of its value from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.
However, JPM recovered strongly post the 2008 crisis to about $32 in early 2010 – rising by 83% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
Will JPMorgan’s Stock Recover Similarly From The Current Crisis?
Keeping in mind the fact that JPM stock has fallen by 31% this time around compared to the 48% decline during the 2008 recession, it can potentially recover 35% to levels of $123 once economic conditions begin to show signs of improving. This marks a partial recovery back to the $132 level JPM stock was at before the coronavirus outbreak gained global momentum.
That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a complete macro picture, and complements our analyses of the coronavirus outbreak’s impact on a diverse set of JPMorgan’s multinational peers including Goldman Sachs and Morgan Stanley. The complete set of coronavirus impact and timing analyses is available here.
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