JP Morgan Chase (JPM) shares plunged in after-hours trading Thursdaywhen the company reported trading losses of about $2 billion which could make one division report a second quarter loss of about $800 million.
A CNBC article quotes CEO Jamie Dimon as saying:
"It could cost us as much as $1 billion or more," in addition to the
loss estimated so far, Dimon said. "It is risky and it will be for a
This means that additional losses are possible in the coming quarters,
however, that is an inherent part of trading, so investors should not
read too much into it. Losses can turn into profits depending on
As soon as this came out, the media went into full swing and hyped this story way beyond any rational level. Futures for both the Dow and the S&P 500 were off nearly 1%, in what might have been one of the most irrational overreactions in recent stock market history. Considering that JP Morgan recently reported a strong profit for the first quarter of 2012 of $5.38 billion, or $1.31 per share, an $800 million loss is unfortunate, but it is certainly no disaster. It makes no sense for the markets to sell off about 1%, wiping out hundreds of billions of dollars in market cap from banks and other stocks. To fully grasp how ridiculous this is, just imagine that instead of an $800 million trading loss, the company reported an $800 million trading profit. Should the U.S. or world markets rally nearly 1% because of that? Absolutely not! The recent morning sell offs have been labeled as "amateur hour" by some analysts as some (presumably retail) investors panic sell in the morning only to see the markets rebound by the close. I expect the same could happen tomorrow because by then, investors will have had time to digest the facts, and buy the false fear that was created by a relatively minor loss. Investment banks make big trades, and sometimes it results in losses, this is much ado about nothing, and a buying opportunity.
Here are some key points for JPM:
- The 52 week range is $27.85 to $46.49
- Earnings estimates for 2012: $4.97 per share
- Earnings estimates for 2013: $5.60 per share
- Annual dividend: $1.20 per share which yields 3%
Financial Select Sector (XLF) is an exchange traded fund which holds stocks like JP Morgan, BofA, Citigroup, and others. It also holds other financial sector stocks such as insurance companies. This is a good way to play the financial sector for investors who want to avoid company-specific risks. The 52 week range is $10.95 to $16.03.
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.