JPMorgan Chase & Co. (JPM): What To Expect Today

KENNESAW, Ga. (Sep 4, 2015) — Today is a crucial day for markets across the globe, as investors brace themselves for the forthcoming data on U.S. employment for the month of August. China woes, coupled with an expected September lift off, have injected considerable volatility in stock markets. Equities, specifically those in the U.S., are likely to display fragility to the job data. Volatility might remain substantially high until the Fed announces its decision. Investors in U.S. banking stocks are bracing themselves for developments that would determine the next best strategy on their holdings. For this purpose, we have used JPMorgan Chase & Co (NYSE:JPM) as a proxy to assess the impact recent turmoil in markets has had on the stock, and how shares will react to job data, and ultimately the Fed’s decision.

The nonfarm payrolls data is due to release today at 08:30 AM EDT. The data will be regarded as a final read on labor conditions in the U.S. for August. The Fed is due to meet in roughly two weeks’ time, in what might conclude as the first interest rate hike since 2006.

A number of experts have up-scaled their probabilities on the Fed sanctioning an interest rate increase, based on an upbeat outlook on job data. Broadly speaking, the progressive state of the U.S. economic environment, gives no reason to delay raising interest rates further.


Expectations

The nonfarm payroll data has been improving steadily. Moreover, the unemployment rate in the country after reaching its peak in the 2009-2010 periods has since, been on a gradual decline. For August, the unemployment rate is expected to drop to nearly 5.2%. If we incorporate workers who are currently in part-time employment but desire full-time employment, it brings the total percentage to over 10.4%. The measure is called a country’s underemployment rate. Specifically, analyst Brian M. Jones at Societe Generale anticipates the underemployment rate for the month of August to be 10.3%.

Based on Bloomberg’s accumulation of a total 97 estimates, the mean consensus estimate for nonfarm payrolls is 212,000. The figure was recorded at 215,000 for the month of July. Of the estimates, the most bullish outlook has been released by analyst David Kelly at JPMorgan Asset Management. Mr. Kelly expects nonfarm payrolls to rise significantly to 253,000 for the period under consideration, closely followed by analyst Maninder Sibia of Contingent Macro Advisors, who expects a figure of 250,000.

The least optimistic outlook came in from Mikhail L Melnik at Kennesaw State University, who anticipates nonfarm payroll to be 130,000, which is considerably below the consensus estimates. Similarly, analyst Toby Dayton at LinkUp predicts the figure to be 135,000.


China

Job data is not the only factor influencing Federal Reserve's decision making. China’s economy has been forecasted to grow at its slowest in almost 25 years. Mainland stock markets in the country have been generating record lows, offsetting acute sell offs. China has the second largest economy in the world, and has an incredible influence on stocks across the globe. A glimpse of China’s influence on world markets was seen during the Black Monday event. Markets all over the world plunged into negative space, as China’s Shanghai Stock Exchange Composite Index plunged more than 8%, which pushed equities all over the world in the red.


Stock Movement

JPMorgan shares, followed by a number of U.S. banking stocks, lost a significant portion of their market value on the day. Banking stocks dropped to record lows on concerns of the Fed altering its decision following the event. If the Fed does in fact, delay a rate hike, forecasted bank earnings would have to be revised down. This could offset a sell off from investors who grabbed banking stocks, solely in anticipation of an impending rate hike. However, value investors, interested in company fundamentals are likely to stick around.

The graph below shows how the stock has performed since the Black Monday event. Overall, its shares have generated a gain of more than 4% since then. The improvement has come on the back of a rosy outlook on job data, which signals a rate hike. This is with the exception of Tuesday’s trade, when international markets plunged yet again, on a decreased China PMI.

Markets are expected to show significant sensitivity in today’s trade, depending on how the job data plays out.

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