JPMorgan Chase (JPM) stock has generated a return of 12.9% in the last six months and 41.6% over the past year due to a rise in core banking, higher interest margins, card sales, and its Asset Management division. This return was partially offset by subdued trading over the last two quarters.
In 3Q17, JPM managed return on equity (or RoE) of 11% and return on total capital employed (or RoCE) of 13%—both down 1% compared to 2Q17. Overall, bankers (XLF) are expected to see subdued sequential growth due to lower trading activity and weaker credit offtake.
In 9M17, JPMorgan Chase has raised $1.7 trillion of credit and capital, including $820.0 billion for corporate and non-US governmental entities, as well as $197.0 billion for retail consumers.
Commercial banks (XLF) have seen revaluations in recent months on expectations of a windfall from tax rate cuts. They also expect a benefit from financial reforms either through the Choice Act or amendments to existing capital adequacy requirements.
JPMorgan Chase is trading at a premium valuation of ~1.5x compared to the industry average of 1.2x. The bank commands a premium mostly due to its growth across its divisions, global expansion, strong risk management policies, trading, and investment banking strengths.
Overall, the industry has seen some recent revaluation due to macros, policies, and rate hikes. JPM’s competitors are trading at the following price-to-book multiples:
Commercial banks’ growth in the upcoming quarters should be driven by rate hikes, policy changes, rate cuts, and a manufacturing boost in the US. However, lower trading income can push their valuations marginally lower due to subdued performance.