Why JPMorgan Chase Stock Tumbled Today
Key Points
Higher rates are largely beneficial to lenders.
Inflation persists in the U.S. economy, so a rate hike, or several, in the near future is very likely.
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Hump Day proved to be too much of an obstacle for JPMorgan Chase (NYSE: JPM) stock to overcome.
The Federal Reserve's (Fed) Open Market Committee elected to keep its key interest rates unchanged, so Chase and other American banks won't see a sudden boost in their interest income. That discouraged investors enough to trade the shares down by almost 3% over Wednesday's trading session.
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Expected, if not welcome
The equity of Chase and other banks didn't decline more on that news because many market players, not to mention analysts and economists, were expecting it. Nevertheless, inflation continues to have a withering effect on both the U.S. and global economies, and at some point in the near future, it's almost a given that the Fed will hike rates again.
Image source: Getty Images.
Higher rates aren't automatically a boon for every bank. By and large, however, lenders benefit from a wider "spread" between the interest they earn on loans and the usually minuscule interest they pay on client deposits.
When rates rise, loan interest almost always increases more than deposit interest. Banks are not renowned for being generous.
A very resilient lender
Another factor is that Chase stock had quite a run-up before the Fed's jet of cold water. Like all other lenders participating in the regulator's annual stress tests this year, it passed with flying colors. Compounding that, its recent quarterly earnings reports have been excellent, packed with impressive growth numbers despite a few concerns. Sooner or later, the party always ends.
I don't think this is the start of a rout for either Chase or the U.S. bank sector as a whole. This company will continue to do well in an economy that remains frothy -- ditto for the capital markets it's so deeply involved in -- and it's sure to benefit when rates ultimately get a hike or several.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Eric Volkman 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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