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JPM Senate Testimony

06/13/2012

Early last week we amended our June market calendar to include this morning's Senate testimony from JP Morgan (JPM) CEO Jamie Dimon. I anticipated this would be a market moving event, and the testimony did not disappoint. Mr.Dimon presented himself in an incredibly confident fashion, specifying three positive conditions that provide further evidence the significant selloff for JPM, which began on May 10, has stabilized (Figure 1.1).
 
JPM – Three specific positive conditions:
1.  Quarter will be solidly profitable
2.  Progress has been made on reducing risk
3.  No unauthorized trading occurred
 
On Tuesday evening, June 6, I suggested on CNBC’s “Fast Money” that the "short trade" in JPM (Figure 1.2) was over. After this morning's testimony, I am even more confident in that assertion. This note, however, is not a specific recommendation for purchasing JPM equity. In fact, for those looking for the "all clear" signal to purchase JPM, I expect the $15 billion share buyback program which was suspended on May 21 needs to be restored first.
 
Rather, today is a positive step for a market in desperate need of sector leadership and a reversal of the overwhelming negativity within the capital markets. The financial sector (XLF) (Figure 1.3) has been a 2012 leader for performance and telegraphing overall direction of the S&P 500 (SPX). With energy, materials, and industrials lacking the ability to lead the market higher this year, the burden falls to technology and financials. Today's testimony is a much needed positive development in stabilizing the financial sector.
 
The immediate strategy would be to seek ownership of the debt of favored names in the financial sector. Spreads in the financial sector have widened in recent weeks, Investors should use that as an opportunity.  As for owning the equity of select financials, mark Friday, July 13 on your calendar – JPM reports Q2 earnings that morning. We will talk again after we read the earnings and listen to the conference calls….
 
 
Figure 1.1 JPM Price, June 14, 2011 to June 13, 2012

Source: Bloomberg
 
Figure 1.2 JPM Price, May 1, 2012 to June 13, 2012

Source: Bloomberg
 
Figure 1.3 XLF SPDR Financial ETF, January 1, 2012 to June 13, 2012

Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.