In a strong bull market so far this year, one of the biggest questions for investors is when the Federal Reserve will finally pull back on its economic stimulus efforts, and how dramatically the central bank's policy will change. The Fed has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008. Since September, the Fed has been expanding its balance sheet through net monthly purchases of $85 billion in long-term securities, in an effort to hold long-term rates down. During testimony before the Joint Economic Committee of Congress, Bernanke on Wednesday repeated the stance of the Federal Open Market Committee (FOMC) which has said after recent meetings that assuming inflation was kept in check, the federal funds rate would stay in its current range at least until the U.S. unemployment rate remained above 6.5%.
"Recognizing the drawbacks of persistently low rates, the FOMC actively seeks economic conditions consistent with sustainably higher interest rates," Bernanke said. "Unfortunately, withdrawing policy accommodation at this juncture would be highly unlikely to produce such conditions. A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further." During a question-and-answer session with members of the congressional panel following his prepared testimony, Bernanke discussed the timing of a possible slowdown in securities purchases by the Federal Reserve. "If we see continued improvement and we have confidence that that's going to be sustained then we could in the next few meetings . . . take a step down in our pace of purchases," he said, according to a Reuters report. "If we do that it would not mean that we are automatically aiming toward a complete wind down. Rather we would be looking beyond that to see how the economy evolves and we could either raise or lower our pace of purchases going forward," he said.
JPMorgan ChaseShares of JPMorgan have returned 24% this year, following a 36% return during 2012. The shares trade for 9.0 times the consensus 2014 earnings estimate of $5.94 a share, among analysts polled by Thomson Reuters. This is the cheapest forward price-to-earnings valuation among the "big six" U.S. banks:
- Citigroup's (C) shares on Wednesday closed at $50.99 and traded for 9.6 times the consensus 2014 EPS estimate of $5.32.
- Morgan Stanley (MS) closed at $24.71 and traded for 9.7 times the consensus 2014 EPS estimate of $2.54.
- Shares of Bank of America (BAC) closed at $13.30 and traded for 10.3 times the consensus 2014 EPS estimate of $1.29.
- Wells Fargo (WFC) closed at $40.11 and traded for 10.3 times the consensus 2014 EPS estimate of $3.90.
- Goldman Sachs (GS) closed at $159.41 and traded for 10.4 times the consensus 2014 EPS estimate of $15.27.
With Dimon successfully shrugging off the attempt by some shareholders to split his dual roles as JPMorgan's CEO and chairman of the board of directors, Sterne Agee analyst Todd Hagerman wrote in a note to clients on Tuesday that "the incremental headline risk associated with a potential management re-shuffling should subside, with an increased investor focus on the company's otherwise solid operating results." Hagerman rates JPMorgan Chase a "buy," with a price target of $54.00. KBW analyst Christopher Mutascio on Wednesday reiterated his "outperform" rating for JPMorgan Chase, while raising his price target for the shares to $58 from $54. "Our original target price of $54 was on the conservative side," Mutascio wrote in a note to clients, "representing less than 9.5x our 2014 EPS estimate of $5.80, as we were concerned about the lingering impact the London Whale incident would have on the company's P/E multiple. But, with the market willing to put a P/E multiple of 12.0x on names like
Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock. -- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn