JPMorgan Chase's Stock Could Soon Pass a Major Threshold

Markets Motley Fool

Shares of JPMorgan Chase (NYSE: JPM) have climbed considerably over the past year and are now closing in on $100. When it eventually crosses that threshold, it will be the first time in the bank's history that its shares trade in triple-digit territory.

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Just since this time last year, JPMorgan Chase's stock is up more than 43%. Most of the climb happened in the immediate wake of the presidential election, when bank stocks rose across the board, on hopes that then-President-elect Donald Trump would be able to deliver on his campaign promises of lowering taxes and easing the regulatory burden in the financial services industry.

By March of this year, shares of JPMorgan Chase temporarily peaked at around $93, only to then lose $10 per share over the next three months. Ever since June, however, the bank's shares have been on an upward climb.

Closing at $95.51 a share on Friday, it isn't unreasonable to think that JPMorgan Chase would see its stock break the $100 barrier well before the end of the year. It needs less than a 5% advance.

There are more than enough catalysts on the horizon that seem capable of propelling this type of gain for the New York City-based bank -- though, of course, there's always the possibility that negative catalysts will appear as well.

The first potential positive catalyst would be tax reform. The administration has begun to circulate its proposal to lower the top corporate tax rate from 35% down to 20%.

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Few companies would benefit as much from this as JPMorgan Chase. In fact, only Apple would, given that it's the only other company on the S&P 500 that earns as much money each year as JPMorgan Chase.

In 2016, JPMorgan generated $34.5 billion in pre-tax earnings. On that, it paid $9.8 billion worth of income taxes. That equates to a 28% tax rate, or well above the proposed 20%.

It's impossible to say how much JPMorgan Chase would save if the corporate tax rate was dropped that far, given the complexity of taxes as well as the fact that the bank presumably incurs income taxes in other countries as well. But it could easily be in the high hundreds of millions of dollars each year, if not over a billion.

The second catalyst that lies most prominently on the horizon is a potential interest rate hike by the Federal Reserve at its upcoming meeting in December. The central bank has raised the primary short-term interest rate in the final month of both of the past two years, and traders are betting on the fact that it will do so again in 2017.

The CME Group's FedWatch Tool puts the odds at 76.4% for a quarter-point climb in the fed funds rate in December. And with the flurry of positive economic news of late, from a nascent rebound in inflation to solid economic growth, it seems reasonable to conclude that this will in fact come to fruition.

If this were to happen, it'd further propel JPMorgan Chase's net interest income, which stands to increase by $2.2 billion if short- and long-term rates climb 100 basis points.

In sum, while it's impossible to predict the future short-term direction of stocks in general, much less a single stock in particular, there's reason to believe that JPMorgan Chase's stock could soon pass the $100 threshold for the first time in its history.

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John Maxfield has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.