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Stock Prices Brief Analysis

On Friday J.P. Morgan Chase & Co. posted a $5.4 billion quarterly profit, down from $5.6 billion in the year-earlier quarter and Wells Fargo & Co. announced that net income rose 13% from a year ago to $4.2 billion. Although earnings at both banks exceeded Wall Street estimates that was largely because both are scaling back the amount of money they have set aside to cover future losses. Shares of J.P. Morgan dropped $1.64, or 3.7%, to $43.20, and Wells Fargo fell $1.18, or 3.5%, to $32.84. The results also sent shares of other big banks tumbling. The Dow Jones Industrial Average fell 1.1%, in part due to broader global concerns: China's economy expanded last quarter at its slowest pace in three years, and rising bond yields in Spain intensified concerns about Europe's sovereign-debt crisis.

Concise and to the point responses.

a. What change in earnings did J.P. Morgan Chase and Wells Fargo announce on Friday? How did the earnings compare to a year ago and to analyst's estimates?

b. How do stock prices typically react to earnings announcements? What drives this normal reaction?

c. How would you explain the way that the stock prices of J.P. Morgan Chase and Wells Fargo reacted to their earnings announcements on Friday?

d. How did the stock prices of other big banks react to the earnings announcements by these two banks? How would you explain this reaction?

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a) JP Morgan reported earnings of $5.4 billion last quarter compared to $5.6 billion in the year earlier quarter. This was $200 million less than the year earlier quarter, however, the $5.4 billion exceeded analysts estimates. Wells Fargo reported $4.2 billion in earnings last quarter compared to $3.7 billion in the year earlier quarter. This was $500 million more than the year earlier quarter, and also exceeded analysts estimates for ...

Solution Summary

The expert provides a brief analysis for stock prices.

$2.19