Despite persistently high interest rates and economic fears, megabank JPMorgan Chase (NYSE: JPM) delivered 20% total returns for investors in the first half of 2024. The bank's results have been rather strong, but even CEO Jamie Dimon warns investors that we haven't quite completed the economic "soft landing" just yet.
With that in mind, is it still a good time to buy JPMorgan Chase, or has the stock become a little too expensive? Here's a rundown of why the bank's stock did so well in the first half of the year, how the business has been doing lately, and what investors should know about the stock's valuation right now.
Why did JPMorgan Chase perform so well in the first half?
There are a few potential reasons JPMorgan Chase did so well in the first half of 2024. First and foremost, the bank's results were quite strong throughout the business, and we'll get into the numbers in a bit.
There's also a clear shift in expectations when it comes to interest rates and economic stability, especially in recent months. The market is now pricing in a virtual certainty of a Federal Reserve rate cut by September and a total of three rate cuts before the end of the year. Interest margins have contracted throughout the banking industry; the short explanation is that the rates banks pay on deposits have generally grown faster than the yields they're getting from loans. But as benchmark interest rates come down, this could certainly reverse course.
On the economic stability side, while there were widespread fears about a spike in consumer loan defaults, in recent quarters things like credit card net charge-offs have plateaued, and at not much higher than pre-pandemic levels. In a nutshell, an economic "soft landing," as the Fed likes to call it is starting to seem more like a base case.
Highlights from JPMorgan Chase's latest earnings report
As mentioned, it isn't just about investor sentiment. JPMorgan Chase has given bank stock investors quite a bit to smile about. In the second quarter, the bank's revenue grew by 20% year over year and beat analyst expectations for earnings per share. Investment banking fee revenue was a strong point, up 46% year over year, as was equities trading revenue, which grew by 21%.
Unlike most of the bank's peers, net interest income actually increased on a year-over-year basis. JPMorgan Chase's 23% return on equity for the second quarter was incredibly strong. And throughout the business, the results look quite promising.
Consumers remain strong, with debit and credit card volumes up 7% year-over-year and 14% growth in client investment assets. In the asset and wealth management business, JPMorgan Chase has $3.7 trillion in assets under management, up 15% year over year on both strong market performance and client inflows.
Looking ahead, JPMorgan Chase expects a 3.4% credit card net charge-off rate for the year, which implies that this metric will actually improve between now and the end of the year. It was 3.5% in the second quarter.
Is the stock too expensive?
So JPMorgan Chase's business is doing well, and investors generally think conditions for banks will improve significantly over the next couple of years as rates normalize. But what about valuation?
With a price-to-book multiple of about 1.89, JPMorgan Chase is rather expensive compared with its peers, but this isn't especially high historically. Its price to book was generally at or above the current level throughout 2021, for example. Plus, the stock trades for just 13 times forward earnings expectations.
The bottom line is that JPMorgan Chase isn't a cheap bank stock. But it doesn't look expensive, either. Think of JPMorgan Chase like an excellent meal at a fancy restaurant. Sure, it costs more than its neighbors. But you get what you're paying for.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy .
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