Research Market strategy
By Swissquote Analysts
Published on 16.01.2023
Morning news

JP Morgan Gets a Lift from Interest Rates but Warns of Mild Recession

Topic of the day

JP Morgan Chase & Co. (+2.5%) said Friday that its fourth-quarter profit rose 6%, boosted by rising interest rates that sent its core lending income to a record high. The bank posted net income of $11 billion, or $3.57 per share, up from $10.4 billion, or $3.33 a share, a year ago. That beat the $3.08 per share expected by analysts. That increase came even as the bank warned it was preparing for what it now expects to be a mild recession. It set aside $1.4 billion to handle potential worsening loan losses, after releasing rainy-day funds at this time a year ago. The nation's biggest bank said revenue rose 18% to $34.55 billion as higher interest rates drove a boom in its lending business and provided the volatility on Wall Street to keep traders busy. That beat the $34.35 billion expected by analysts polled by FactSet. The bank's net-interest income jumped 48% to $20.2 billion, a quarterly record that exceeded the bank's surprisingly high forecast of $19 billion. That metric measures what the bank makes on lending minus what it pays depositors. The Federal Reserve's rapid increase in interest rates has allowed JP Morgan to charge more on loans even as it kept deposit costs at practically nothing. The bank's net-interest margin increased to 2.47% from 2.09% in the third quarter. For the full year, the bank's revenue rose 6% to $128.7 billion, its fifth record year in a row. Profit fell 22% to $37.7 billion on the changing potential for loan losses. The stronger-than-expected profit helped bolster the bank's capital levels and it said it is now able to resume share repurchases, which it had halted last year.

Swiss stocks

The SMI closed almost unchanged at 11,291 points on Friday. Among the 20 SMI stocks, there were 13 price losers and 7 price winners. 45.1 (previously: 52.24) million shares were traded. Among the individual stocks, Credit Suisse fell by 2.3 per cent, while UBS closed 0.5 per cent up. Among the pharmaceutical giants, Roche gained 1.0 per cent and Novartis 0.5 per cent. Shares in index heavyweight Nestle advanced 0.3 per cent. Partners Group lost 3.1 per cent. The private equity firm's 2022 assets under management were even weaker than expected, Citigroup announced. The analysts downgraded their rating to "Neutral" from previously „Buy". Apparently, its forecast for 2023 growth in assets under management was weaker than thought. Logitech's shares slipped a further 2.8 per cent after a sharp drop the previous day. The IT company had cut its outlook for the full financial year on Thursday in the face of a weak third quarter, after which its share price plunged by around 17 per cent. Deutsche Bank has now downgraded the stock to "hold" from "buy". The current downturn in the PC market and weakening demand appear to be more severe than previously expected, analysts revealed. Inficon added 2.8 per cent having presented preliminary figures for 2022.

International markets


European shares extended their rally on Friday as investors continued to mull evidence of cooling U.S. price pressures and its impact on the Federal Reserve's plans for interest-rate increases. The Stoxx Europe 600 index closed up 0.5% at 452.5 points. In Paris, the CAC 40 and the SBF 120 both gained 0.7%. The DAX 40 added 0.2% in Frankfurt, and the FTSE 100 increased by 0.6% in London. Air France-KLM (+6%) was supported by UBS raising its recommendation from "neutral" to "buy". The bank also raised its target price to €2, up from €1.75. In addition, Irish research firm Davy lifted its recommendation on the stock to "neutral". Carmakers Stellantis (-3.8%) and Renault (-1.5%) were among the biggest decliners on the SBF 120 on Friday, as US group Tesla cut the price for some of its vehicles to keep up with the competition. Cloud computing services specialist OVHcloud (+0.7%) confirmed its targets for the year ending August 31, 2023, after posting sales above analysts' estimates in the first quarter. Energy producer TotalEnergies (+0.5%) announced the start-up of the Deutsche Ostsee LNG import terminal for liquefied natural gas (LNG) in Germany. The site is operated by Deutsche ReGas and is located in Lubmin, on the German Baltic Sea coast. JPMorgan placed Crédit Agricole SA (-0.3%) "on negative watch". JPMorgan lowered its price target for the French bank from EUR 10.5 to EUR 10, while reiterating its recommendation to "underweight".

United States

Stocks rose Friday to cap off a winning week as investors weighed a batch of quarterly earnings results from big banks that shed light on how U.S. companies are holding up in a slowing economy. The three major stock indexes opened lower but steadily gained through the trading session. The S&P 500 rose 15.92 points, or 0.4%, to 3999.09. The Nasdaq Composite was up 78.05 points, or 0.7%, at 11079.16. The Dow Jones Industrial Average added 112.64 points, or 0.3%, at 34302.61. All three benchmarks finished the week with gains of at least 2%. Some of the country’s biggest banks kicked off the fourth-quarter earnings season with better-than-expected results. Reports from JP Morgan Chase and Bank of America showed many lenders have so far benefited from the Federal Reserve’s interest-rate increases, which allow them to earn more from loans. Both stocks rose more than 2% on Friday. An optimistic reading on the state of American consumers also boosted market sentiment, with the University of Michigan’s consumer-sentiment index popping to its highest level since April. Inflation data released this week kept the Fed on track to slow its pace of interest-rate increases, as consumer-price growth eased in December for a sixth consecutive month. The central bank is widely expected to raise its benchmark rate by a quarter of a percentage point at its Feb. 1 meeting, down from a half-percentage-point increase in December. Recent gains in some of the market’s more speculative corners signal the enthusiasm from investors. The ARK Innovation exchange-traded fund, which sank in 2022, is up 15% year to date. Bed Bath & Beyond shares have rallied more than 45%, despite a sharp decline Friday, evoking the wild meme-stock trading of 2021. Delta Air Lines shares fell $1.40, or 3.5%, to $38.20, even after the airline reported better-than-expected earnings for the fourth quarter, as travel demand continues to recover from the pandemic hit. Tesla shares slipped $1.16, or 0.9%, to $122.40 after the electric-vehicle maker cut prices. Shares of other car makers also fell, with General Motors and Ford down roughly 5% each.


Asian stocks were display a mixed picture at the beginning of the week. China’s benchmark Shanghai Composite edged up 1.7%, while Hong Kong’s Hang Seng added 0.5% and Japan’s Nikkei 225 index shed 1.2%. Japan’s Nikkei 225 index is weighed down by car and electronics stocks. Suzuki Motor edged 1.3 per cent lower and Canon lost 2.9 per cent. In Hong Kong, continued optimism about China's economic recovery after the abandonment of the zero-covid policy is supporting the Hang Seng. China's central bank left key benchmark interest rates unchanged.


U.S. government debt yields rose Friday, with the rate on the policy sensitive 2-year note bounding off a three-month low set the previous session after data showed U.S. inflation continued to cool in December. U.S. markets will be closed Monday for the Martin Luther King Jr. Day holiday. The 10-year Treasury note was yielding gained 6 basis points to 3.503%. The 2-year Treasury note added 8 basis points to 4.215%.


Jefferies lowers Zurich target to CHF 465 (470) - Hold
Deutsche Bank cuts Logitech to Hold (Buy) - Target CHF 54 (68)
UBS reduces U-Blox to Sell (Neutral) - Target CHF 100 (135)

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