High inflation has been a problem for the economy this year. Although the consumer price index (CPI) eased slightly in October, it remains way above the Fed’s 2% long-term target.
The Federal Reserve has been trying to combat runaway inflation by draining liquidity from the financial system by hiking the benchmark interest rates and selling off a significant part of its bond portfolio.
The Fed has raised the benchmark interest rate six times this year, with the fourth consecutive 75 basis point rate hike taking the target range to 3.75%-4%.
Bankrate’s chief financial analyst Greg McBride said, “A fourth consecutive rate hike of 0.75 percent – after going 28 years without one that large – speaks to the urgency of the Fed’s task.” “They’re still playing catch-up against inflation that continues to run near 40-year highs,” he added.
Concerns over rising borrowing costs have led to volatility in the stock market. However, not all sectors suffer from rising interest rates. Financial institutions, including banks, usually benefit from rising interest rates as it helps them expand their interest income.
Therefore, it could be wise to make the most of the strong uptrend in bank stocks JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), and The Goldman Sachs Group, Inc. (GS).
JPMorgan Chase & Co. (JPM)
JPM is engaged in investment banking, financial services, and asset management. It operates in four segments, as well as a Corporate segment. The company’s segments are Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset Management.
Over the last three years, JPM’s revenue grew at a 3.9% CAGR, while its EPS grew at a 5.3% CAGR.
JPM’s total net revenue for the third quarter ended September 30, 2022, increased 10.3% year-over-year to $32.71 billion. The company’s net interest income increased 33.9% year-over-year to $17.51 billion. In addition, its net income increased 12.6% sequentially to $9.73 billion.
Analysts expect JPM’s revenue for the quarter ending December 31, 2022, to increase 15.9% year-over-year to $33.92 billion. Its EPS for the quarter ending March 31, 2023, is expected to increase 27.2% year-over-year to $3.35.
