Investors will be watching whether JPMorgan Chase & Co. (JPM), the biggest U.S. bank by market value, at more than $375 billion, can maintain its growth in key equities, debt, and lending markets as the economy slows and the bull market appears to lose momentum. The bank is expected to report earnings for 3Q 2019 before the market opens on Oct. 15.

Despite a challenging environment for profit growth, as the Federal Reserve cuts interest rates, JPMorgan Chase beat analysts' estimates for earnings per share (EPS) in the first two quarters of 2019, by 12.8% each time. Its stock has risen by 21.0% year-to-date through Oct. 1, 2019, based on adjusted closing prices, outperforming the KBW Bank Index, up by 13.6%, and the S&P 500 Index, up by 17.3%.

What Investors Are Watching For

Low and declining interest rates tend to reduce a key profitability measure for banks, their net interest margin between their cost of funds and rate charged on loans. Investors will focus on movements in this key metric.

JPMorgan Chase is the industry leader in credit cards, investment banking, and private banking, and second in consumer deposits behind Bank of America, Barron's reports. Its market share in deposits has grown to 9% from 3.6% in 2006. “Since the financial crisis, JPMorgan [Chase] has taken market share almost every year in almost every business and puts up some of the best return metrics in the industry,” observes Jason Goldberg, an analyst with Barclays, as quoted in that report.

To increase this share yet more, JPMorgan Chase is adding 400 branches, at a cost of about $700 million, in markets such as Boston, Philadelphia, and Washington, while enhancing its digital banking capabilities for consumers. Progress in these areas also will be watched closely.

Analysts' Estimates

As of Oct. 1, the consensus calls for EPS of $2.45 in 3Q 2019, up by 4.7% from the same period in 2018, but down by 13.1% from 2Q 2019. The revenue estimate anticipates 2.6% growth year-over-year, but 1.0% less than in the prior quarter of 2019.

Among the 28 analysts covering JPMorgan Chase, 13, or 46%, rate the stock a buy or a strong buy. Their average price target is $119.08, or 3.1% above its close on Oct. 1.

Stable Businesses

“The volatility of our results is very low over time--even, surprisingly, in businesses like fixed-income trading, where a large chunk of the revenues are consistent, year to year,” as Jamie Dimon, JPMorgan Chase’s chairman and CEO, told Barron's earlier this year. He mentioned consumer banking, asset management, and wealth management as areas that are particularly stable sources of revenues. “The macro environment doesn’t change anything we do. We invest through the cycle. The underlying economy is still doing OK,” he added.

Loan Quality, Not Quantity

“We tell our management that we have no problems seeing loan books shrink,” Dimon stated earlier in 2019, per Barron's. Echoing a remark by Warren Buffett about the insurance business, Dimon said, “you’re better off having the sales force play golf than make new [bad] loans; we’re not going to be stupid.” He also said that the biggest threats to his bank are “complacency, arrogance, and bureaucracy."

Indeed, Buffett is a longtime admirer of Dimon, and Berkshire Hathaway Inc. (BRK.A) has acquired 59.5 million JPMorgan Chase shares in the last three quarters, its largest equity purchase in that period, Barron's notes.

Investing in Technology

Betsy Graseck, global head of banks and diversified finance research at Morgan Stanley, sees JPMorgan Chase's commitment to technology as a key driver of growth, per another Barron's story. "We expect them to spend $11.6 billion on technology this year, or 10% of revenues, which is similar to other banks...This is driving the efficiency ratio down; that ratio measures noninterest expenses as a percentage of total net revenue. It’s also enabling JPM to be more competitive on pricing, which then takes [market] share," she observed.

Looking Ahead

While interest rate cuts by the Fed are a short term negative for bank profits, this impact “could be mitigated by an extension of the economic cycle and potentially better loan growth,” according to Mike Mayo, an analyst with Wells Fargo, as quoted by Barron's.

Meanwhile, Betsy Graseck's team projects average annual revenue growth for JPMorgan Chase of 2% to 4% for the next several years. Combined with operating leverage and a commitment to stock buybacks, they expect EPS to increase by 3% to 9% annually, and the forward P/E ratio, currently around 11, to rise.