JPMorgan Chase (JPM) stock has delivered an outstanding year for investors, up about 30% amid resilient macroeconomic conditions driving a string of better-than-expected earnings. That trend continued with the bank's latest third-quarter update, as strong operating and financial performance indicators sent the shares to a 52-week high.
Following such a big rally, investors may be wondering what comes next. Let's discuss whether JPMorgan Chase stock is a buy, sell, or hold.
The case to buy or hold shares of JPMorgan
JPMorgan Chase benefits from its enormous size, counting on $4.2 trillion in assets and a high tier 1 capital ratio level. This "fortress balance sheet" has gained importance considering the banking industry turmoil in recent years, when a handful of smaller regional players faced a liquidity crisis and faltered. JPMorgan has managed to consolidate its market share by attracting deposits.
By this measure, a good reason to buy or hold the stock is the confidence that the megabank will maintain its industry leadership status with plenty of room to grow in the long run.
In the third quarter, JPMorgan's earnings per share (EPS) reached $4.37, up 1% from the same period last year and well ahead of the average Wall Street estimate of $4.01. Adjusted revenue climbed by 6% year over year, capturing a higher net interest margin and momentum in non-interest revenue.
One metric that stood out was a 1% increase in both average loans outstanding and deposits, particularly important at a time when other banks are facing more challenging lending conditions. Its commercial and investment bank segment led growth as record asset prices have been a tailwind for lending and underwriting activity. For the asset and wealth management division, JPMorgan noted it was a record quarter for revenue and long-term money inflows.
Those trends balanced some weakness in the consumer and community banking group, which posted a 3% decline in revenue from Q3 2023. Despite higher credit card services and auto lending revenue, tighter spreads on deposits pressured the segment net interest margin, which could have some room to fall further as the Federal Reserve moves to cut interest rates.
At the same time, there is an expectation that lower market interest rates should boost demand for credit into 2025. During the Q3 earnings conference call, Chief Financial Officer Jeremy Barnum described a "strong labor market" and said consumer spending is on a "solid footing." Overall, JPMorgan Chase continues to execute well through its diversified business model.
Image source: Getty Images.
The case to sell JPMorgan Chase stock
The main risks facing JPMorgan Chase in the near term are factors outside of its control. As strong as its balance sheet is, and despite how well the bank might perform relative to competitors, deteriorating macroeconomic conditions would likely lead to lower earnings and an extended decline in the stock price.
In Q3, JPMorgan included a bankwide $3.1 billion provision for credit losses, marginally higher than Q2, implying some ongoing concern for the health of borrowers.
Investors who believe the global economy could still slide into a recession have a reason to consider selling JPMorgan stock or at least avoiding it for now.
The other consideration is the lofty valuation premium. Shares of JPMorgan trade at 1.9 times book value, well above the decade average, which is closer to 1.5. Similarly, the stock's dividend yield of about 2.1% has settled near its lowest level in the past 10 years. My interpretation is that this indicates that stock is a touch expensive, which adds to the tricky balance of risks that warrant caution.
JPM Price to Book Value data by YCharts
Decision time
I expect JPMorgan Chase to continue rewarding shareholders over the long run. That said, I believe a hold rating on the stock at the current level is a prudent move, with many of the near-term positives in the banks' outlook already priced in. For investors on the sidelines, some patience may provide the opportunity to pick up shares at a lower and more attractive price during the next round of market volatility.
