JPMorgan’s big profit growth isn’t likely to persist

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Markets lost momentum
Major U.S. indexes mostly slipped Friday, though the Dow Jones Industrial Average bucked the trend to inch up slightly. Asia-Pacific markets dipped Monday. Mainland China’s Shanghai Composite fell around 0.4%, and the yuan weakened marginally, as the People’s Bank of China left its short- and medium-term lending rates unchanged.

Booming profits at JPMorgan
JPMorgan Chase’s third-quarter profit surged 35% from a year ago to hit $13.15 billion, while revenue popped 21% to $40.96 billion, surpassing expectations. Net interest income, at $22.9 billion, was 30% higher than the same period in 2022, beating estimates by around $600 million. Shares of the bank climbed 1.5% Friday. Still, CEO Jamie Dimon warned we’re facing “the most dangerous time” in decades.

Hot oil
On Friday, prices of both U.S. West Texas Intermediate and Brent crude futures soared more than 5.7% to $87.72 and $90.89 per barrel, respectively. That’s the highest jump in a day for both crude futures since April 3. (Prices remained mostly unchanged during Asia trading hours Monday.) Meanwhile, U.S. oil production hit an all-time high last week, marking a comeback in the domestic industry.

‘Path to a Palestinian state’
U.S. President Joe Biden said in a televised interview Sunday the Palestinian militant group Hamas must be neutralized — but there also “needs to be a path to a Palestinian state.” Separately, China’s Foreign Minister Wang Yi reportedly told his Saudi Arabia counterpart Faisal bin Farhan Al Saud that “Israel’s actions have gone beyond self-defense.”

[PRO] All eyes on banks
Keep your eye on banks posting results this week — the numbers will provide clues to many aspects of the economy, such as consumers’ strength and whether corporate borrowing and dealmaking are returning. Wall Street banks like Goldman Sachs and Bank of America report earnings Tuesday, followed by regional banks — and Morgan Stanley — on Wednesday.

Going into this earnings season, analysts feared big banks’ income wouldn’t hold up from the previous quarters. Those fears didn’t materialize — for now.

Net interest income, in particular, was higher than expected. That’s the amount banks pocket when they give depositors a low (or zero!) interest rate on their savings, and charge borrowers a high interest rate, usually pegged to the federal funds rate.

Given the high yields on U.S. Treasury and money market funds, analysts thought banks would be forced to shower depositors with higher interest rates, reducing net interest income. That didn’t happen. On the contrary, net interest income rose from a year ago at JPMorgan and Wells Fargo, and beat expectations at Citigroup.

But JPMorgan CEO Jamie Dimon isn’t feeling complacent about that. Dimon acknowledged that his bank’s “over-earning” on net interest income, a benefit that will vanish eventually.  

For a preview of that, we don’t have to wait for the following quarters. We just have to look at BlackRock’s third-quarter earnings. Clients pulled their money from BlackRock’s active unit and its index and ETF unit because “for the first time in nearly two decades, clients are earning a real return in cash and can wait for more policy and market certainty before re-risking,” CEO Larry Fink said.

Meanwhile, gold saw its best day of the year on Friday. December futures contracts for the safe-haven metal rose 3.11%, putting it 6.31% higher than its level at the start of 2023. That’s another sign risky assets are losing attractiveness.

Indeed, the S&P 500 retreated 0.5% and the Nasdaq Composite fell 1.23%. But the Dow Jones Industrial Average managed to eke out a 0.12% gain. For the week, only the Nasdaq closed lower.

It isn’t just investors who are feeling jittery. Outside financial markets, consumer sentiment is slumping, as indicated by the University of Michigan’s survey. But that’s not really a surprise, given the geopolitical shocks and human tragedy unfolding currently.

“The war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships,” Dimon said. “This may be the most dangerous time the world has seen in decades.”