JPMorgan kicked off bank earnings seasons yesterday with a bang — a 42% drop in profits — sending its stock down 3.2%.

What’s the big deal? Investment banks had a rough first quarter, with global market conditions hitting nearly all parts of their businesses. Earnings fell $6B as a result of a:

• 31% drop in investment banking revenue from lower deal activity and a $524M commodities loss related to Russia exposure.
• 37% drop in new mortgages due to rising interest rates.

The war and high inflation led JPMorgan to set aside $902M in reserves for bad loans — those it expects won’t be paid back. Rising costs are also to blame.

In January, JPMorgan announced plans to invest a massive $12B to fend off fintech competitors and forecasted expenses to rise 8.6% this year — a move that analysts weren’t happy about.

Not all bad news: Shareholders authorized a $30B share buyback program starting May 1. Total loans grew 6% — with loan activity picking up since COVID stimulus checks reduced the borrowing demand.

• Rising interest rates benefit the banks’ interest income. Still, the impacts of war and inflation have trumped rising interest rates so far.
• They also tend to benefit main street banks more — which earn a more significant portion of their sales from business and personal loans.

Earnings outlook: Citi, Goldman and other big investment banks are reporting earnings today — all expected to report a severe earning drop. Beyond banks, analysts will be closely watching supply chain impacts on earnings.

But earnings season gives investors reasons to remain positive. Between 2000 to 2022, S&P 500 returns were double on the weeks during “earnings seasons” — compared to non-reporting weeks (BBG).

Earnings to watch next week: Bank of America (Monday), Netflix (Tuesday), Tesla (Wednesday), Snap (Thursday), American Express (Friday)