On the face of it, JPMorgan Chase & Co. (NYSE:JPM) is a risky investment. Not only is it trading intimately close to its 52-week high of $55.90, but it is also on the center stage of a possible industry-wide pullback. Incertitude has shrouded the banking sector following the Fed’s announcement on impending cutbacks to economic aid. A 2011 audit of the Federal Reserve reveals that economic aid, which was instituted post-2008 to correct the negative implications of the financial crisis, totaled $16 trillion at the time. As of now, this figure is set to have increased and Fed Chairman Ben Bernanke believes that it’s high time the government pulled out and let the economy run itself.
If the Fed-driven fears hold, an investor exodus will most definitely hit the banking sector. Does this mean that you should join the crowd? No it doesn’t. If you embrace a long-term buy-and-hold strategy, this is the time to establish a position in, or add more of JPMorgan to your portfolio. Despite trading close to its 52-week high, JPMorgan Chase & Co. (NYSE:JPM)’s prospects in little-discussed areas suggest that it could soon break its banks and venture into an entirely new share price territory.
Housing rebound presents alternative growth path
Behind the doomsday headlines surrounding the banking sector, interesting developments are happening. While it’s not news that the housing sector is rebounding, a good number of people seem to be oblivious to the rate at which it is rebounding and, further still, the implications that this uptrend will have on banks.
The National Association of Realtors offers that existing home sales in May hit highs not seen since 2009, increasing 12.9% year-on-year. This remarkable improvement was also accompanied by overall improvement in other key metrics in the housing sector.
The banking sector has gained immensely from the ripple effect of the housing rebound. JPMorgan Chase & Co. (NYSE:JPM)’s competitor Bank of America Corp (NYSE:BAC), which is incidentally trying to regain its market share in the mortgage market, underwrote $24 billion in home loans for the first three months of the year. This, however, waned in comparison to JPMorgan, which originated $53 billion in mortgages during the same period.
As far as the housing rebound goes, Bank of America is creating a prime leeway for its competitors. The bank has been pulled into a loan modification lawsuit. The lawsuit involves the bank’s former employees and a group of homeowners who allege that their requests for loan modifications under the Federal Home Affordable Modification Program were turned down, for the most part fraudulently. The testimonies under the case are outrageous. Former bank employees offer that they were under orders from above to lie through their teeth to unsuspecting clients.
While Citigroup Inc (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM) were found to have failed on at least 12 benchmarks instituted to assess banks’ progress on settlements, they accepted their mistakes and vowed to make amends. Bank of America Corp (NYSE:BAC), however, remains mum--even in the face of the ongoing legal brawl. While this may have a negative effect on Bank of America’s public image, it is on the flipside a key opportunity for JPMorgan to gnaw into Bank of America Corp (NYSE:BAC)’s mortgage market; especially now that the housing sector is rebounding.