JPMorgan says it’s time for US corporate taxes to catch back up with the rest of the world

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Trump Biden
Presidents Joe Biden (L) and Donald Trump (R).

  • JPMorgan said the US should increase corporate tax rates to catch up to other world economies.
  • The US is more focused than other countries on raising tax revenue from personal income and housing.
  • Even before the 2017 Trump tax cut, it found US corporate tax revenues lower than the global average.
  • See more stories on Insider’s business page.

President Joe Biden kicked off a major debate in early April when he proposed raising the corporate tax rate from 21% to 28% to fund his $4 trillion infrastructure plan. Now JPMorgan has weighed in on the matter and it finds corporate tax revenue is lower in the US than elsewhere, even if the rate is now close to the international average.

And as sentiment appears strong in the US that American corporations don’t “pay their fair share,” the bank found that relative to other economies, the US “prioritizes raising tax revenue from personal income and property.” In other words, the current American tax system raises more from people’s paychecks and real-estate investments than from companies, compared to the rest of the world.

JPMorgan’s economic research note on Thursday found that prior to President Donald Trump’s 2017 tax cuts, the US statutory corporate tax rate of 35% was high compared to other countries, but that law slashed them by 13.2% – the largest decline ever.

Furthermore, the bank found that dating back to 2000, revenues actually collected from American corporate taxes only represented about 2% of gross domestic product (GDP), versus a 3% average globally. This reflects, the bank said, “a complex system of exemptions and deductions embedded in the US tax code that reduces the corporate tax base and results in corporate taxes contributing a much lower share of total tax revenue in the US than elsewhere.”

And after the Trump tax cut, this percentage fell to just 1% of GDP. This explains the American reliance on taxing personal income and housing, the note said.

“The US stands out as having both the highest share of revenue from personal income (both labor and investment) across the economies we examine, and the smallest share of tax revenue from taxes on goods and services,” the note said.

While Biden and Democrats have supported raising the corporate tax rate to fund infrastructure, Republican lawmakers oppose doing so. For example, Sen. Roger Wicker of Mississippi, the ranking Republican on the Senate Commerce Committee, said that rolling back Trump’s 2017 tax cuts would be “an almost impossible sell” to get bipartisan support.

And Insider reported on Thursday that a group of Republican senators are drafting their own infrastructure plan – one that would cost between $600 billion and $800 billion, and would be funded without any corporate tax hikes.

“My own view is that the pay-for ought to come from people who are using it. So if its an airport, the people who are flying,” Sen. Mitt Romney of Utah, who is helping draft the plan, told reporters. “If it’s a port, the people who are shipping into the port; if it’s a rail system, the people who are using the rails; If it’s highways, it ought to be gas if it’s a gasoline powered vehicle.”

But Biden has remained firm on increasing the corporate tax rate to 28%, saying in a speech last week that the tax hike would level the playing field for large companies and average Americans.

He said: “I’m not trying to punish anybody, but damn it, maybe it’s because I come from a middle-class neighborhood, I’m sick and tired of ordinary people being fleeced.”

JPMorgan doesn’t put it in quite those terms, but its note concludes that so-called ordinary people account for a greater share of tax revenue in the US than elsewhere.

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Bank of America smashes forecasts to double profits in 1st-quarter earnings as the US rebound boosts Wall Street

Bank of America trader NYSE
Bank of America’s trading division increased its revenue sharply.

Bank of America’s first-quarter earnings smashed analysts’ estimates on Thursday, with profits more than doubling year on year to $8.1 billion as the bank released reserves set aside to cover coronavirus loan losses.

BofA’s $8.1 billion of net income was far higher than analysts’ forecasts of $6.25 billion and was up from $4 billion a year earlier, when the pandemic weighed on banks. It pushed earnings per share to $0.86, well above the consensus estimate of $0.66.

The rapidly recovering US economy helped the bank release $2.7 billion from the reserves it had built up as a buffer against potential loan losses, boosting profit.

And like its peers Goldman Sachs and JPMorgan, Bank of America benefited from a boom in trading revenue during a period of stock market volatility. Revenue from sales and trading jumped 17% to $5.1 billion, the bank said.

Bank of America shares were up 1.18% in pre-market trading to $40.35 after the first-quarter earnings were released.

Here are the key numbers:

  • Net income: $8.1 billion, versus Bloomberg consensus estimate of $6.25 billion
  • Earnings per share: $0.86, versus consensus estimate of $0.66
  • Revenue: $22.8 billion, versus consensus estimate of $21.97 billion

“Our team produced exceptional results this quarter,” Bank of America chairman and chief executive Brian Moynihan said in a statement. He said the bank had achieved “record or near-record levels of deposits, investment flows, investment banking revenue, digital users and client engagement.”

However, Moynihan said that ultra-low interest rates continued to pose a challenge to revenue, with increased just 0.2% year on year to $22.8 billion. Net interest income fell 16% to $10.2 billion.

Both Goldman and JPMorgan also smashed Wall Street estimates on Wednesday, with the banking giants benefiting from a recovering economy, government stimulus and frothy markets. Wells Fargo similarly beat predictions as a turnaround effort showed early results.

“The US earnings season kicked off… with the largest US banks proving once again they can top analysts’ expectations by wide margins,” said Hussein Sayed, chief market strategist at trading platform FXTM.

“Growth in investment banking, capital markets and paring back loan loss reserves were major factors contributing to the bottom lines.”

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JPMorgan’s Q1 earnings smash estimates with a 14% jump in net revenue boosted by its investment bank

JPMorgan CEO Jamie Dimon
JPMorgan CEO, Jamie Dimon.


JPMorgan, the top US bank by assets, reported first-quarter earnings on Wednesday, beating consensus estimates of analysts polled by Bloomberg on strong trading revenue.

It is the first major bank to report results this quarter, paving the way to offer a look at how banking businesses are faring alongside progress in COVID-19 vaccinations.

The bank’s net revenue came in at $33 billion, up 14% from a year ago, driven by its performance in the corporate and investment-banking division.

“JPMorgan Chase earned $14.3 billion in net income reflecting strong underlying performance across our businesses, partially driven by a rapidly improving economy,” CEO Jamie Dimon said in a statement.

“With all of the stimulus spending, potential infrastructure spending, continued Quantitative Easing, strong consumer and business balance sheets and euphoria around the potential end of the pandemic, we believe that the economy has the potential to have extremely robust, multi-year growth.”

Here are the key numbers:

  • Net income: $14.3 billion versus $9 billion estimated
  • Earnings per share: $4.50 versus $3.13 estimated
  • Revenue: $33.1 billion versus $30.3 billion estimated

The jump in profit was partly driven by a release of loan loss reserves, in the amount of $5.2 billion this quarter. Last quarter, the bank released $2.9 billion in reserves.

The bank had set aside reserves of $26 billion in anticipation of a wave of loan defaults amid the coronavirus pandemic. Dimon said he believed the amount is “appropriate and prudent, all things considered.”

JPMorgan’s corporate and investment-banking divison was the standout performer, with a 46% jump in net revenue to $14.6 billion. Its robust performance was fuelled by a surge in deal-making as the bank advised on 126 deals worth about $208 billion in the first-quarter, according to GlobalData.

JPMorgan’s shares are up 21% since the start of this year.

Goldman Sachs and Wells Fargo are expected to report first-quarter results later on Wednesday.

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How JPMorgan plans to boost wealth management and battle fintech competition

Jamie Dimon
JPMorgan CEO Jamie Dimon

  • JPMorgan, headed up by CEO Jamie Dimon, is the biggest US bank by assets.
  • The bank has big plans for wealth management growth.
  • JPMorgan also made new digital banking hires, including poaching an exec from Goldman.
  • Visit Business Insider’s homepage for more stories.

JPMorgan is the biggest bank in the US and a bellwether for the global financial system. So when the firm’s senior-most leaders talk, Wall Street pays attention.

The bank is set to report first-quarter earnings on Wednesday, April 14. Earlier this month, CEO Jamie Dimon published his annual shareholder letter.

JPMorgan has also recently nabbed three new hires for its digital and product leadership team for consumer and community banking (CBB) from some of its biggest competitors.

Read more:

Recent hires and exits at JPMorgan

Sonali   Headshot SDivilek
One of JPMorgan’s recent hires is Sonali Divilek, who was a key executive at Goldman Sachs’ Marcus in charge of products.

JPMorgan on April 13 announced three new hires to support its consumer- and community-banking team.

Sonali Divilek, who was the head of product at Goldman Sachs’ Marcus, is one of the hires. The departure of Divilek, whom Chase said would be joining the bank this summer as the head of digital channels and products, represents a blow for Goldman’s consumer business as it looks to compete amid a raft of leadership and engineering exits.

Thasunda Brown Duckett, a rising star at the firm and the first Black woman to join its influential operating committee, left JPMorgan in February to lead financial services and retirement firm TIAA. Jennifer Roberts, who headed the firm’s business banking group, was named the bank’s new consumer head in March.

More on people moves here:

Wealth management plans

MASPETH, NY - NOVEMBER 17: Shivani Siroya, Kristin Lemkau and Stephanie Cohen speak onstage at Girlboss Rally NYC 2018 at Knockdown Center on November 17, 2018 in Maspeth, New York. (Photo by JP Yim/Getty Images for Girlboss Rally NYC 2018)
Kristin Lemkau, center, the chief executive of JPMorgan’s US wealth management business.

JPMorgan is planning to significantly expand its financial advisor force, bringing the firm closer in size and scope to its rival firms in wealth management. Over the next five to six years, the bank is considering hiring as many as 4,000 advisors to roughly double its current base, US Wealth Management Chief Executive Officer Kristin Lemkau told Business Insider this fall.

Lemkau, who has been with the bank for over two decades and was previously its chief marketing officer, was named head of JPMorgan’s new wealth division in December 2019. Its various wealth businesses, including its self-directed wealth product, were reorganized under one umbrella.

Read more on JPMorgan’s wealth management plans:

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Inside JPMorgan’s plans to boost wealth management and battle fintech competition

Jamie Dimon
JPMorgan CEO Jamie Dimon

  • JPMorgan, headed up by CEO Jamie Dimon, is the biggest US bank by assets.
  • The bank has big plans for wealth management growth.
  • JPMorgan is also looking to bring workers back to offices, including a new Manhattan HQ.
  • Visit Business Insider’s homepage for more stories.

JPMorgan is the biggest bank in the US and a bellwether for the global financial system. So when the firm’s senior-most leaders talk, Wall Street pays attention.

The bank is set to report first-quarter earnings on Wednesday, April 14. Earlier this month, CEO Jamie Dimon published his annual shareholder letter.

Read more:

Wealth management plans

MASPETH, NY - NOVEMBER 17: Shivani Siroya, Kristin Lemkau and Stephanie Cohen speak onstage at Girlboss Rally NYC 2018 at Knockdown Center on November 17, 2018 in Maspeth, New York. (Photo by JP Yim/Getty Images for Girlboss Rally NYC 2018)
Kristin Lemkau, the chief executive of JPMorgan’s US wealth management business.

JPMorgan is planning to significantly expand its financial advisor force, bringing the firm closer in size and scope to its rival firms in wealth management. Over the next five to six years, the bank is considering hiring as many as 4,000 advisors to roughly double its current base, US Wealth Management Chief Executive Officer Kristin Lemkau told Business Insider this fall.

Lemkau, who has been with the bank for over two decades and was previously its chief marketing officer, was named head of JPMorgan’s new wealth division in December 2019. Its various wealth businesses, including its self-directed wealth product, were reorganized under one umbrella.

Read more on JPMorgan’s wealth management plans:

Recent hires and exits at JPMorgan

Thasunda Brown Duckett, a rising star at the firm and the first Black woman to join its influential operating committee, left JPMorgan in February to lead financial services and retirement firm TIAA. Jennifer Roberts, who headed the firm’s business banking group, was named the bank’s new consumer head in March.

More on people moves here:

Read the original article on Business Insider

The Archegos meltdown will result in a $10 billion loss for global banks, JPMorgan says

Wall Street.
Big Tech recovers after a rough day Wednesday on Wall Street.

  • Global banks are expected to lose up to $10 billion from the Archegos meltdown, JPMorgan said.
  • This is 5x the normal loss level for a collateralized daily mark-to-market business, JPMorgan added.
  • It however cited three lessons the industry could take away from the implosion that has roiled the markets.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Global banks are expected to lose up to $10 billion following the Archegos Capital Management meltdown, JPMorgan said Monday – raising its estimate from an initial $2 billion-$5 billion – with Credit Suisse Group and Nomura Holding hardest hit.

“One line of argument which could explain why the scale of losses suffered by [Credit Suisse] and Nomura was higher could be a higher level of leverage extended by these banks compared to [Goldman Sachs and Morgan Stanley], which seem to have suffered smaller losses if any,” JPMorgan analysts led by Kian Abouhossein said in a research note Monday.

JPMorgan clarified that there may also be additional considerations that determined the sizable difference between the scale of losses suffered, such as the timing of the sale of positions, among others. Nonetheless, the entire episode affects the industry overall, given that global banks could end up losing five times the normal loss level for a collateralized daily mark-to-market business.

JPMorgan cites three lessons the industry could take away from the fund’s implosion.

First, investment banks in general are in better shape today and are more focused on high-volume execution platforms.

“There is no excessive leverage in the [investment banking] or [private banking] industry,” JPMorgan said. “Although [private banking] leverage has been increasing, it is nowhere near prior peaks.”

The bank also said it sees no excessive equity-swap growth, a simple instrument all parties will benefit from.

Second, US regulatory frameworks like Basel III and the Dodd-Frank Act have improved the risk profile of investment banks. JPMorgan, however, noted that there is still weak oversight for non-bank entities, especially when it comes to family offices.

Archegos, a family office founded in 2012, did not have to disclose investments, unlike traditional hedge funds. JPMorgan also pointed to the lack of transparency when it came to equity-swap filings.

The Archegos sell-off exposed the fragility of the financial system, especially those involving lesser-known practices such as total return swaps, a derivative instrument that enabled Bill Hwang’s office not to have ownership of the underlying securities his firm was betting on and the secrecy of family offices. Typically, family offices enjoy the “private adviser exemption” provided under the Advisers Act to firms as these usually advise less than 15 clients, among other conditions.

But JPMorgan said, “filing requirements would have applied to Archegos given its sizable exposure to some US securities. However, the fact that Archegos did not file with the [Securities and Exchange Commission] can be explained by the usage of total return swaps, which seems to be the primary method through which the sizable positions were built by Archegos.”

Dan Berkovitz, a Democratic commissioner on the Commodity Futures Trading Commission, denounced family offices and their ability to skirt some oversight.

“A ‘family office’ has nothing to do with ordinary families,” he said in a statement on April 1. “Rather, it is an investment vehicle used by centimillionaires and billionaires to grow their wealth, reduce their taxes, and plan their estates.”

Third, JPMorgan said private banks, specifically those linked to Archegos, moving forward could improve their onboarding, especially with clients with backgrounds such as Hwang, who has run into trouble in the past. Private banks could also strengthen their risk management by giving less leverage to non-transparent family offices with concentrated positions and ensure checking the clients’ rehypothecation risk, among others.

Archegos in late March used borrowed money to make large bets on some stocks until Wall Street banks forced Archegos to sell over $20 billion worth of its shares after failing to meet a margin call. Hwang grew his family office’s $200 million investment to $10 billion. Reports say the former Tiger Management trader lost $8 billion in 10 days.

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The broader stock market is not in a bubble, but these 5 sectors are, according to JPMorgan

NYSE trader
  • Concerns over a potential bubble forming in the stock market have been growing as equities continue to hit record highs.
  • But according to a Thursday note from JPMorgan, the broader stock market is not in a bubble.
  • Instead, five sectors in particular seem to be in bubble territory after more than tripling in price, the bank said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

A continued rise to record highs in the stock market has some worried that a bubble is forming as valuations appear stretched and rising inflation seems imminent.

But according to a Thursday note from JPMorgan, there is no bubble to be found in the broader stock market. High expectations for historic economic growth amid a reopening of the US economy supports the move higher in stocks, according to the bank, which expects US GDP growth of 6.3% for 2021.

But within certain sectors, there does appear to be pockets of froth that are likely experiencing a bubble, JPMorgan said. These are sectors that “have more than tripled in price over a short period of time,” the bank explained.

These are the five sectors of the stock market that appear to be in a bubble, according to JPMorgan.

1. Clean Energy

Anything related to ESG has seen a boom in prices as investors continue to gravitate towards sustainable investing. Clean energy is one sector that comes top of mind to investors that are looking to invest in a green future, and the top holdings in the iShares Clean Energy ETF represent companies in the fuel cell and wind energy space.

Since its pandemic low last year, the ETF rallied as much as 324% in less than a year, meeting JPMorgan’s criteria for a potential bubble.

2. Solar Energy

The sector saw a strong boost as the prospects of a Joe Biden presidency and democratic-controlled Senate became more apparent. President Biden has pointed to solar as a core technology needed to combat climate change. The industry is expected to significantly benefit from Biden’s $2.2 trillion infrastructure bill.

Solar stocks staged a strong rebound after its pandemic low, with the Invesco Solar ETF rallying as much as 496% in less then a year.

Read more: We asked 5 renowned growth-fund managers for their favorite stock picks. These are the 4 that multiple managers think will crush the market going forward.

3. Electric Vehicles

Following the theme of clean energy and Biden’s green agenda, electric vehicles have staged monster rallies over the past year, mostly led by Tesla. Now, investors are holding out hope for more gains as Biden’s infrastructure bill includes $174 billion for the electric vehicle industry.

EV stocks have rallied by as much as 178% since its pandemic low last year, as measured by the iShares Self-Driving and Electric Vehicle ETF.

4. Cryptocurrencies

Bitcoin remain the most popular cryptocurrency, but thousands of other crypto assets exist, and many of them have seen marked price increases over the past year. Those crypto assets tend to move in tandem with bitcoin, which saw a more than 1,400% increase since last year’s pandemic low. The total market value for cryptocurrencies recently exceeded $2 trillion, and even XRP caught a bid as it faces a lawsuit from the US Securities and Exchange Commission.

While JPMorgan views cryptocurrencies in a potential bubble, the firm believes bitcoin could hit a long-term price objective of $130,000.

5. SPACs

The boom in SPACs over the past year has been unprecedented, as companies seeking to go public sidestepped the traditional IPO process in favor of the quicker and cheaper SPAC process amid the pandemic. In the first quarter of 2021, SPACs raised more money than the did in the entirety of 2020. Some estimates even suggest that the current stable of SPACs have more than $1 trillion in buying power. But the SEC is starting to set its focus on SPACs and the lofty earnings estimates firms are setting when going public.

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JPMorgan CEO Jamie Dimon says the US faces 7 major hurdles to economic growth, including high healthcare costs and income inequality

jamie dimon
Jamie Dimon, CEO of JPMorgan Chase

  • Jamie Dimon said the US must address policy problems to ensure economic growth.
  • The JPMorgan CEO said healthcare and education help ensure the US dollar remains strong.
  • Former president Donald Trump fell short on his promise to increase annual GDP growth to 3%.
  • See more stories on Insider’s business page.

JPMorgan Chase chief executive Jamie Dimon called for expanded healthcare and education access in his annual letter to shareholders Wednesday, challenging policymakers to overcome seven major hurdles holding back American prosperity.

Specifically, Dimon said the US government and businesses must work to improve issues ranging from income inequality, economic opportunity and education gaps, healthcare for all, better infrastructure, more affordable housing and increased disaster preparedness to ensure economic growth.

In the letter, Dimon said JPMorgan, the US’ largest bank by assets, had donated funds to improve access to education and healthcare as part of its $200 billion grant for environmental and economic development deals.

“My fervent hope is that America will roll up its sleeves and bring bold leadership to our self-inflicted problems,” Dimon said. “We can be unabashed about the exceptionalism of America while acknowledging that we have problems.”

A lack of affordable and accessible healthcare and education has resulted in 70% of young people being ineligible for military service due to poor reading skills and obesity, Dimon said. The power of the military helps keep the US dollar the strongest in the world, he continued.

Medical expenses will also push the country into further debt over the next two decades, Dimon said, unless the economy grows at a faster pace.

Dimon said the US economy has grown just 18% over the last 10 years, compared to 40% growth in the decade following economic downturns in 1982 and 1990. Had there been more growth, Dimon said, wages would have been higher and the US could have afforded “better social safety nets.”

Read more: Inside JPMorgan’s $30 billion push for racial equity in the economy – and within its own walls

The growth of the country’s gross domestic product – or the country’s economic output – grew at a slower rate under Presidents Barack Obama and Donald Trump compared other recent presidents, though jobs and household income rebounded after the 2008 recession. Trump fell short on his promise to increase annual GDP growth to 3%.

Americans have also experienced stagnant wages for the better part of the the last decade, in part due to the declined power of labor unions and a minimum wage stuck at $7.25 for more than a decade. Income inequality has gotten worse during the pandemic: billionaires made $3.9 trillion as the country as the unemployment rate remains at 6%.

Though Dimon said US income inequality was the “higher than the rest of the world” and one of the country’s largest challenges, he himself took home $31.5 million in 2020.

With regard to other policy challenges, Dimon said he has “little doubt” President Joe Biden’s new infrastructure bill will lead to an economic boom, and has committed part of his $30 billion racial equity pledge to help make housing affordable for Black and Latino people.

“Fixing America’s problems is going to take hard work,” Dimon wrote. “But if we divide them into their component parts, we will find many viable solutions. With thoughtful analysis, commonsense and pragmatism, there is hope.”

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A decline in bitcoin’s volatility makes it more attractive to institutions and supports a $130,000 long-term price target, JPMorgan says

A visual representation of the digital Cryptocurrency, Bitcoin is on display in front of the Bitcoin course's graph
A visual representation of the digital Cryptocurrency, Bitcoin is on display in front of the Bitcoin course’s graph.

  • A recent decline in bitcoin’s volatility could boost its adoption by institutions as a low-correlation asset that helps diversify investment portfolios, according to JPMorgan.
  • If bitcoin continues to see its volatility converge with gold’s volatility, it would fetch a long-term price target of $130,000, JPMorgan said in a note on Thursday.
  • “Mechanically, the bitcoin price would have to rise [to] $130,000, to match the total private sector investment in gold,” JPMorgan said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Bitcoin’s price volatility has been on the decline in recent weeks, making it more appealing to institutions that are seeking low-correlation assets to better diversify investment portfolios, JPMorgan said in a note on Thursday.

A boost in institutional adoption of bitcoin is “likely to arise from the recent change in the correlation structure of bitcoin relative to traditional asset classes,” the bank explained.

One of the biggest barriers to institutions adopting the cryptocurrency has been its markedly high volatility, which exploded in 2020 as bitcoin more than tripled. From a risk management point of view, high volatility “acts as a headwind towards further institutional adoption,” JPMorgan said.

Now, there are signs that bitcoin’s volatility is normalizing, which would help “reinvigorate” interest by professional investors to include the cryptocurrency in its asset allocations.

One asset that’s negatively impacted from bitcoin’s growing favor with institutions is gold, which has seen $20 billion in fund outflows since mid-October, compared to $7 billion in bitcoin fund inflows over that same time period, according to the bank.

“Considering how big the financial investment into gold is, any such crowding out of gold as an ‘alternative’ currency implies big upside for bitcoin over the long term,” JPMorgan said.

That upside includes a long-term price target of $130,000, which represents potential upside of 121% from current levels.

“Mechanically, the bitcoin price would have to rise [to] $130,000, to match the total private sector investment in gold,” JPMorgan said, based on the current price of gold of $1,700 per troy ounce. JPMorgan previously had a $146,000 long-term price target for bitcoin, but that fell as gold’s price has recently fallen from a peak of $1,900 per troy ounce.

“The decline in the gold price since then has mechanically reduced the estimated upside potential for bitcoin as a digital alternative to traditional gold, assuming an equalization with the portfolio weight of gold,” the bank explained.

JPMorgan’s long-term price target for bitcoin is predicated on the idea that bitcoin’s volatility will converge with gold’s. That’s still far off from happening, as the three-month realized volatility for bitcoin recently stood at 86%, versus just 16% for gold.

“A convergence in volatilities between bitcoin and gold is unlikely to happen quickly and is likely a multi-year process. This implies that the above $130,000 theoretical bitcoin price target should be considered as a long-term target,” JPMorgan said.

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Green stocks have got caught up in the tech sell-off. But it’s just a dip, as climate investing is set to power ahead under Biden, according to JPMorgan

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President Joe Biden has pledged to tackle climate change

  • Investors may have become overexcited with some green stocks, JPMorgan’s European heads of ESG research said.
  • Yet green investing is only just getting started, they said, as Joe Biden and others focus on the climate.
  • The research chiefs said the US is unlikely to let the EU be the standard-setter on green investing.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Green stocks have sold off quite aggressively this month, but fears of a bubble are overblown and a new climate focus from Joe Biden and other governments means environmental investing is only just getting going, JPMorgan’s co-heads of ESG research for Europe have said.

Jean-Xavier Hecker and Hugo Dubourg told Insider the Biden-Harris green stimulus plans, China’s sustainability push and Europe’s new environmental investing rules would all boost the market and create new opportunities.

The recent stock-market volatility – triggered by rising bond yields – has hit green stocks, such as those in renewable energy and electric vehicles, along with tech, after these sectors last year.

The iShares clean energy exchange-traded fund was down 12% in the month to Friday according to Bloomberg data, for example, while the S&P sustainability index has underperformed the wider market. Electric vehicle stocks such as Tesla and Nio have fallen sharply too. The S&P 500, meanwhile, has gained over 3% so far in March.

But Dubourg said: “The stocks that have tumbled are largely solar and EVs, where the valuations exploded at the end of last year. So it’s not really ESG investing overall which has been questioned.”

He said the market is “not being nuanced enough” in its approach to environmental, social and governance investing.

Hecker said investors had focused on the “simplistic trade” in recent months, bidding up green favorites. Tesla is a prime example, rising more than 500% over the last year, but falling around 7% in the month to Friday. Yet the market should “not be too concerned about green bubbles,” he said.

“The climate ambitions of the Green Deal in Europe, of the Biden-Harris platform in the US, of China with its 2060 carbon-neutrality ambition will be much more transformative,” he said. The Biden administration’s advisors are hoping to spend around $3 trillion, with climate change a key focus.

Hecker added that the Biden administration is likely to boost green investing as it tries to match Europe’s advancements on ESG rules. “There is no way the US is going to let Europe be the standard setter on ESG,” he said.

Europe introduced new reporting rules for companies earlier in March that aim to help investors work out which assets really are green. It is part of a wider push by the European Union to set standards for climate-conscious investing.

Green investing had a bumper year in 2020, despite the coronavirus crisis. Goldman Sachs analysts said in a note ESG equity and fixed income funds attracted record inflows in Europe and the US last year, at 184 billion euros ($216 billion) and $50 billion, respectively.

Yet there are growing concerns that the craze for green investing is not as climate-friendly as it makes out. A report from a group of global campaign organizations on Wednesday that the world’s biggest banks, including JPMorgan, have invested $3.8 trillion in fossil fuel firms since the Paris climate agreement was signed in 2016.

A separate report released on Monday by the Climate Action 100+ investor group, which collectively managed $54 trillion, found companies were so far badly failing to live up to their climate pledges.

Mindy Lubber, Ceres CEO and Climate Action 100+ committee member said there is an “urgent need for greater corporate action and higher ambition.”

Hecker and Dubourg – who work independently of JPMorgan’s banking operations – said that although some companies could do more, it will take a while for the effects of commitments to be seen. They said Europe’s new rules were a positive step in this regard, as they provide clear benchmarks for firms to be measured against.

As governments increasingly focus on climate change, new opportunities will crop up in sustainable investing, they said. For example, the Biden administration’s climate plans are likely to extend, or increase tax credits for renewables and support carbon-capture technology.

Hecker said carbon capture is “something which at some point is going to take off because it will be needed as part of the mix… to deliver on the Paris agreement goals.”

The JPMorgan ESG research chiefs said tackling climate change would require even major polluters to change their ways and become much more environmentally friendly.

“There will be no such thing as these stocks increasing by 4,000% again,” Hecker said. “Now you need to be looking for relative winners and differentiated business models.”

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