We recently published Jim Cramer’s Exclusive List: 10 Stocks to Monitor Closely. In this article, we are going to take a look at where JPMorgan Chase & Co. (NYSE:JPM) stands against the other stocks Jim Cramer recommends to monitor closely.
On a recent episode of Mad Money, Jim Cramer emphasized the risks of straying too far from technology stocks, particularly the dominant tech companies, in today’s market. He pointed out how JP Morgan, despite being one of the best-performing banks, caused a stir by cutting its forecast, warning that estimates might be overly optimistic. This news hurt the broader market, dropping it by 93 points, although the S&P 500 saw a slight rise of 0.54%, and the tech-driven NASDAQ gained 0.84%.
“In this market, every time you stray too far from technology, especially the tech titans, you ultimately get slapped in the face by reality. That’s what happened today when the largest, and arguably best-performing, bank in the world, laid a huge egg with its forecast. They told us the estimates are too high, maybe way too high. That spoiled a big chunk of the market, ultimately dipping 93 points. The S&P inched up 0.54%, but the tech-heavy NASDAQ still gained 0.84%.”
Cramer explained that since the Federal Reserve gave positive signals, investors had shifted away from tech into other areas of the market. This shift was part of the “broadening out” that many investors had been waiting for, as it was believed to signal a healthier market. Financial stocks, which make up around 13.3% of the S&P 500, had been a source of excitement for those tired of relying on the leading tech stocks.
“For the past couple of months, ever since the Fed gave us the all-clear signal, we’ve seen money flow out of tech into long-neglected regions of the stock market. This is the fabled “broadening out” that people spent all year clamoring for. When we bring in more groups of winners, we’re supposed to have a much healthier market, at least that’s what they say. There are tons of financials in the S&P 500, about 13.3% of the index and the strength in those stocks was a source of much joy for everyone who had gotten sick of The Magnificent Seven.”
However, as Cramer noted, economic uncertainty and disappointing forecasts from bank companies disrupted this broader market strength. Daniel Pinto, the bank company’s COO, dashed hopes by signaling that the outlook for the bank wasn’t as strong as expected. The key issue was that net interest income, a critical measure for banks, was projected to miss expectations due to reduced capital market activity. For Cramer, this underperformance highlighted the danger of moving away from tech stocks too soon.
“But a funny thing happened on the way to that broadened-out market: we got economic choppiness. Or to use a more accurate phrase, we got guide-downs that were intolerable to any of the leaders, and the kiss of death to the stock of the bank. You can’t be a leader when you’re slashing your forecast for H2. That’s when the shareholders kick you to the curb and find someone new to follow.
But today, Daniel Pinto, the bank’s President and Chief Operating Officer, lowered the boom on the optimists who desperately wanted to buy something other than tech. The big bank told us that things are less bullish than we thought. There isn’t as much capital markets activity as we’d hoped this quarter, and most importantly, the estimates for next year are too high because of a likely miss on net interest income.”
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A group of business people discussing plans around a boardroom table adorned with a financial services company logo.
JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Investors: 111
Jim Cramer explains how JPMorgan Chase & Co. (NYSE:JPM)’s President, Daniel Pinto, recently delivered bad news to investors hoping for alternatives to tech stocks. The bank revealed that conditions are less favorable than expected, particularly in capital markets activity, and they anticipate missing next year’s earnings due to lower net interest income. This is a crucial metric for banks, especially when interest rates are falling. If even JPMorgan Chase & Co. (NYSE:JPM), one of the most prominent financial institutions, can’t meet expectations, it’s concerning for the rest of the sector. As a result, JPMorgan Chase & Co. (NYSE:JPM)’s stock dropped by 5%, pulling other bank stocks down with it.
“Today, Daniel Pinto, JPMorgan Chase & Co.’s President and Chief Operating Officer, lowered the boom on the optimists who desperately wanted to buy something other than tech. The big bank told us that things are less bullish than we thought. There isn’t as much capital markets activity as we’d hoped this quarter, and most importantly, the estimates for next year are too high because of a likely miss on net interest income.
The key metric for banks, one that analysts expect to be good when rates are coming down, is net interest income. In short, JPMorgan Chase & Co. is going to miss the numbers next year. If the “beacon of finance” can’t make the estimates, how the heck will anyone else? So, the stock comes down 5%, at one point even uglier, and the rest of the banks roll over.
It gets worse. Last year, Pinto said the company was slated to spend between $1 billion and $2 billion on tech. This year, JPMorgan Chase & Co. is spending $2 billion, but a lot of that is related to cracking down on fraud. Great, that’s a deadweight loss for the bank—a must-spend with no real return on investment. There’s an opportunity for AI to help them cut costs, especially among the 100,000 to 250,000 people in call centers or doing other back-office jobs, what he calls “operational” roles. Now, many of these people will be “impacted”—which, I guess, is code for laid off. The rest will be part of what he calls “operational efficiencies,” meaning getting more productivity from the same people.
The good news here is that at least JPMorgan Chase & Co. will have some lower expenses over the next three to five years. Given that everything else is going the wrong way, maybe someday, at some point, there will actually be a return on investment in AI. But you can’t just say that out loud because it would require admitting that a lot of “deadwood” is about to get chopped—and deadwood, of course, means people. Wall Street used to actually say stuff like that, but these days we come up with cleaner, more indirect euphemisms. “Hey, we don’t do layoffs anymore, we find efficiencies, we right-size the workforce.”
JPMorgan Chase & Co. (NYSE:JPM) is expected to perform well due to its strong financials, solid balance sheet, and strategic approach to the economy. In Q2 2024, the bank reported a 20% increase in net revenue from the previous year, reaching $51 billion, driven by higher interest rates and strong results from its consumer banking, asset management, and corporate services divisions.
With $4.1 trillion in assets and $341 billion in stockholders’ equity, JPMorgan Chase & Co. (NYSE:JPM) is well-equipped to handle market fluctuations. The bank has successfully taken advantage of rising interest rates, boosting its net interest income, while its diverse revenue sources, including investment banking and wealth management, help protect against rate changes.
Additionally, JPMorgan Chase & Co. (NYSE:JPM)’s investments in AI and technology are set to improve efficiency and drive long-term growth. With analysts increasing earnings forecasts and predicting strong Q3 results, JPMorgan Chase & Co. (NYSE:JPM) is in a strong position for continued financial success.
Carillon Eagle Growth & Income Fund stated the following regarding JPMorgan Chase & Co. (NYSE:JPM) in its first quarter 2024 investor letter:
“JPMorgan Chase & Co. contributed positively to performance following solid financial results and positive guidance for the remainder of 2024. Moreover, growing chatter around rising capital markets activity likely contributed to the stock’s strong performance relative to other banks. Recall that JPMorgan has a robust capital markets franchise.”
Overall JPM ranks 3rd on our list of exclusive stocks Jim Cramer recommends to monitor closely. While we acknowledge the potential of JPM as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than JPM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.