JPMorgan: Prime Loans Form Dark Cloud

On a positive note, the bank lowered loss expectations for its home equity portfolio to roughly $700 million a quarter by the end of the year from a previous estimate of $900 million.

But JPMorgan Chase is remaining cautious on its home equity predictions.

"That number has come down, but the expected losses of subprime and prime is up a couple of million, so it's kind of a wash in our eyes," Dimon said. "It's just that if you look at the latest numbers of delinquencies and roll rates... it looks like it might be a little bit below than what it was before. It's very early, we do not know. People could argue there is some seasonality in that, so it's a little ray of sunshine, which is OK to grab onto for now."

JPMorgan Chase joins several banks so far that have reported better-than-expected quarterly earnings, including Wells Fargo(WFC Quote), PNC Financial Services(PNC Quote) and BB&T(BBT Quote), which pushed the financial sector higher over the last two days.

The positive sentiment, however, is unlikely to last for long. Ever-struggling Citigroup(C Quote) is set to report earnings Friday morning. Other troubled banks including Wachovia(WB Quote) and National City(NCC Quote) are set to report next week.