Stocks appear to be set for a rebound this morning. Traders, optimistic about an economic recovery, have fled more cautious investments like government bonds, pushing their yields — or expected returns — higher. Longer-term Treasury yields tend to rise as investors demand more in return to offset the dollar’s shrinking buying power down the road.
With the 10-year Treasury yield now at 1.6%, still tame by historic standards, the spread vs. short-term Treasury yields has widened considerably. That helps banks’ lending profitability, by borrowing short and lending long.
Our trade alert for today highlights one firm that stands to benefit from broadening yield spread.
JPMorgan Chase (JPM) is the biggest U.S. bank by market value. Markets see it as a window into U.S. consumer spending and corporate sentiment.
The pandemic’s shutdown of the economy has threatened people’s ability to keep up with bill payments. Earnings for JPMorgan plummeted during the first half of last year, but later rebounded. Banks set aside billions last year to cover souring loans as the pandemic sank in.
JPMorgan‘s reserves in the second half of last year were smaller. Vaccinations have begun. But health experts are worried about coronavirus variants and the share price has been pulled down once again.
The bank’s fourth-quarter earnings beat expectations, and it also plans to buy back $30 billion in shares this year, after the Federal Reserve found it and other banks were solid enough to withstand a severe recession.
Analysts expect JPMorgan earnings to grow 20% this year. The current consensus among 27 analysts offering recommendations for JPM stock, 18 rate the stocks a Buy, 6 rate the stock a Hold and 3 rate the stock a Sell.
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