Jamie Dimon Just Gave Investors a Big Warning — Should You Be Worried?

JPMorgan Chase (JPM 1.52%) recently kicked off earnings season for the big U.S. banks, and for the most part, the numbers looked strong. The megabank beat analyst expectations on both the top and bottom lines. Earnings and revenue grew by 25% and 20%, respectively, year over year, and investment-banking revenue jumped by more than 50%.

While the earnings results generally looked strong, it’s important to note that CEO Jamie Dimon had some cautionary words for investors. With the recent surge in market optimism due to signs that inflation could finally be under control, investors might want to hear what Dimon has to say before jumping head first into inflation- and rate-sensitive stocks.

JPMorgan Chase’s strong results

For the second quarter, JPMorgan Chase posted generally strong numbers throughout its business. Revenue grew by 20% year over year led by investment banking fees and 21% growth in equities trading revenue.

Consumer banking remained strong, although net interest margins declined year over year as has been the case throughout the banking industry. In the company’s asset and wealth management business, client assets were up 15% to $3.7 trillion, fueled by a combination of strong market returns and $52 billion in net inflows for the quarter.

Jamie Dimon’s cautionary comments

Recent data clearly shows that inflation has come down quite a bit from the 2022 peak and continues to do so. But Dimon advises investors not to simply assume the inflation problem is entirely in the past.

In the bank’s earnings press release, Dimon said:

There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world. Therefore, inflation and interest rates may stay higher than the market expects.

In short, he said that just because inflation data looks like we’re getting closer to where the Federal Reserve wants, it’s important not to declare victory just yet. As Dimon sees it, there’s still a lot that can cause the data to move the other way.

One of the only major stats from the earnings release that was concerning is the bank’s reserve build of $3.05 billion, which was significantly higher than expected. It also indicates that the bank sees more loan defaults in the future than analysts do.

Dimon’s comments and recent inflation data: Which is right?

Dimon’s comments were included in JPMorgan Chase’s earnings release, which was revealed just a day after the positive inflation data that caused the market to spike higher. We don’t know whether he actually wrote those comments before or after he had the latest data in front of him.

It’s also important to mention that while the cautionary comments have been the focus of most headlines — and rightly so — Dimon also had a lot of positive things to say, especially how the bank and its customers are doing. For example, he highlighted how JPMorgan Chase’s client investment assets hit $1 trillion and the platform brought in the most first-time investors ever.

Finally, while investors certainly take Dimon seriously, it’s also clear that the recent inflation data is still driving investor expectations. According to the CME FedWatch tool, which indicates what investors expect benchmark interest rates to do, the median expectation has increased to three Federal Reserve rate cuts by the end of 2024.

The bottom line is that nobody has a crystal ball, so it’s important to consider cautionary comments like Dimon’s and not just pay attention to the positive data we’ve seen. But the data shows that an economic soft landing is becoming more of a possibility — just be prepared for a few more curveballs in the economy before we get there.