How to Play JPMorgan Stock as Fed Hints Fewer Rate Cuts for 2025?

On Wednesday, the Federal Reserve signaled that the pace of interest rate cuts will slow down significantly in 2025. As such, investors turned bearish, and rate-sensitive stocks, including JPMorgan JPM, plunged. However, the stock rebounded thereafter with a year-to-date return of 36.9%.JPM shares have outperformed not only the S&P 500 Index but also its industry peers – Bank of America BAC and Citigroup C this year.Year-to-Date Price Performance Image Source: Zacks Investment ResearchFewer Interest Rate Cuts in 2025: A Boon for JPMorganWhen the Fed began cutting rates effective September 2024, JPMorgan's stock came under pressure as lower rates would have hampered its top-line growth. Further, the company, on its third-quarter conference call, projected lower interest rates would hurt its net interest income (NII) in 2025.Nonetheless, as inflation turned sticky and did not cool down as expected, analysts and economists started scaling back the pace of rate cuts next year. Further, at the Goldman Sachs 2024 U.S. Financial Services Conference last week, JPM noted that 2025 NII-excluding Markets is likely to be $2 billion higher than previously estimated, driven by a higher interest rate outlook. Previously, management projected the metric to trough by mid-2025 and to be roughly $87 billion by the year-end.For 2024, management anticipates NII to be roughly $92.5 billion (up almost 4% year over year), with nearly $22.9 billion in the fourth quarter of 2024. Though 2025 NII would still be declining on a year-over-year basis for JPM, it will be in a better position than previously expected. On the other hand, BAC and C expect NII to keep rising next year.Revival of Global Deal-Making Activities to Aid JPMJPMorgan continued to rank #1 for global investment banking (IB) fees despite industry-wide weakness in the business. Though the company’s total IB fees (in the CIB segment) plunged 59% in 2022 and 5% in 2023, the trend has been reversing of late. In the first nine months of 2024, the company’s IB fees jumped 34% year over year, with a wallet share of 9.1%. For the current quarter, the company expects IB fees to surge 45% from the prior-year quarter.JPMorgan is likely to witness growth in IB fees, driven by a healthy IB pipeline and active merger & acquisition market, and leverage its top position to gain further from the changed scenario.Opportunistic Acquisitions & JPM’s Other Expansion EffortsJPMorgan has been growing through on-bolt acquisitions, both domestic and global. In 2023, the company increased its stake in Brazil's C6 Bank to 46% from 40%, allied with Cleareye.ai (a financial technology firm focused on trade finance) and acquired Aumni. Also, the company acquired the failed First Republic Bank. The deal continues to benefit JPM’s financials immensely and even helped it reach record profits last year. Additionally, in 2022, it acquired Renovite and a 49% stake in Greece-based Viva Wallet and Global Shares. These deals, along with several others, are expected to support the bank's plan to diversify revenues and expand the fee income product suite and consumer bank digitally.In February 2024, JPM announced plans to open more than 500 branches and renovate roughly 1,700 locations by 2027-end. As of Sept. 30, 2024, it had more than 4,900 branches across all 48 states in the United States. JPMorgan actively seeks to expand its digital retail bank – Chase – across the European Union countries after launching it in the U.K. in 2021. The company is focused on bolstering its IB and asset management businesses in China.JPMorgan’s Fortress Balance Sheet and Solid LiquidityAs of Sept. 30, 2024, JPM had a total debt worth $850.1 billion. The company's cash and due from banks and deposits with banks were $434.3 billion on the same date. The company maintains long-term issuer ratings A-/AA-/A1 ratings from Standard and Poor’s, Fitch Ratings and Moody’s Investors Service, respectively.Hence, JPM continues to reward shareholders handsomely. After clearing the 2024 stress test, the company increased its quarterly dividend by 8.7% to $1.25 per share in September. In February 2024, the company announced a 9.5% hike in quarterly dividends, which followed a 5% increase last year.  In the last five years, it hiked dividends four times, with an annualized growth rate of 5.09%. Currently, the company's payout ratio is 26% of earnings.Dividend Yield  Image Source: Zacks Investment ResearchThe company also authorized a new share repurchase program, effective July 1. Management expects the pace of share buybacks to be modest in 2024 after having repurchased shares worth almost $9.9 billion in 2023.Elevated Mortgage Rates to Hurt JPM’s Mortgage BusinessAs mortgage rates remained high in 2022 and 2023, JPMorgan’s mortgage fees and related income performance turned dismal. With the demand for mortgage loans and refinancing steadily declining, the metric recorded a negative CAGR of 27.5% over the three years ended 2023. Though the trend reversed in the first nine months of 2024, origination volumes and refinancing activities are less likely to witness solid improvement as mortgage rates are expected to remain on the higher side. Per the December 2024 commentary from the Fannie Mae Economic and Strategic Research Group, the mortgage rates are expected to remain well-above 6% in 2025 on lower “market expectations for future interest rate cuts.” Higher mortgage rates will undeniably take a toll on origination and refinancing volumes. Hence, JPMorgan’s mortgage fees and related income is less likely to record solid growth in the near term.Analyst Sentiments Bullish for JPMorganEarnings estimates for JPMorgan for 2024 and 2025 have revised marginally upward over the past month. The positive estimate revision depicts bullish sentiments for the stock.Earnings Estimates Trend Image Source: Zacks Investment ResearchThe Zacks Consensus Estimate for JPM’s 2024 earnings implies 9.1% growth year over year, while 2025 earnings indicate a 5.2% fall because of weakness in NII and mortgage banking business and higher non-interest expense. Management anticipates non-interest expenses to be almost $97 billion next year. For 2024, the metric is expected to be approximately $91.5 billion.Earnings Estimates Image Source: Zacks Investment ResearchFind the latest earnings estimates and surprises on Zacks Earnings Calendar.JPM Stock Looks a Bit ExpensiveGiven an impressive rally in JPM shares, it appears slightly expensive relative to the industry. The stock is currently trading at the forward 12-month price/earnings (P/E) of 13.87X. This is above the industry’s 13.50X, reflecting a stretched valuation.Price-to-Earnings F12M Image Source: Zacks Investment ResearchIs JPMorgan Stock Worth Betting on Now?JPMorgan’s leadership position in several businesses and strategic plan to expand its footprint globally gives it an edge over its peers. Its focus on building a solid deposit franchise and bolstering its loan book positions it well for future growth.Yet, investors must take into consideration the bearish analyst stance for JPM for next year. They must watch the NII trajectory and how future interest rate cuts impact the company’s financials. Investors must consider these factors carefully and evaluate their risk tolerance before buying the JPM stock. Those who already own the stock can hold on to it because it is less likely to disappoint over the long term. JPM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Bank of America Corporation (BAC): Free Stock Analysis Report JPMorgan Chase & Co. (JPM): Free Stock Analysis Report Citigroup Inc. (C): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks