Commonwealth Bank of Australia (ASX: CBA) shares have outperformed the broader market in 2024 and are up nearly 28% this year.
After a brief sell-off towards the end of October, shares in the banking major have curled off lows of $132 apiece on October 4 to trade at $143.93 just after the open on Monday.
Another positive signal could be emerging for CBA shares, thanks to banking giant JP Morgan Chase & Co. (NYSE: JPM)'s third-quarter results released earlier this month.
The US company's Q3 performance could benefit peers like Commonwealth Bank if the bullish sentiment continues. Let's take a look.
What did JP Morgan's results reveal?
JP Morgan reported its third-quarter results in early October, staging a substantial growth over Q3 last year.
The bank booked net income of US$12.9 billion, or US$4.37 per share, up from a loss of US$5.3 billion in the previous quarter.
Total revenue reached US$42.7 billion, driven by a 31% growth in investment banking fees and a 27% rise in performance in its equities division.
Whilst the financials were good, the talking point was the growth in average loans, up 1%, whereas average deposits were down 8% over the year in the consumer & community banking segment.
With the lower deposits and higher loan origination, net interest income (NII) was up 3% to US$23.5 billion.
CEO Jamie Dimon was clear on the bank's highlights:
The Firm reported strong underlying business and financial results in the third quarter…In CCB, we ranked #1 in U.S. retail deposits for the fourth consecutive year.
Card loans increased 11%, and we saw robust acquisition of 2.5 million accounts. Finally, in AWM, asset management fees rose 15%, and long-term net inflows were a record $72 billion.
Management now expects the firm to book US$92.5 billion of NII this year.
How could this impact Commonwealth Bank shares?
JP Morgan's performance might be a positive indicator for those who own Commonwealth Bank shares.
Being one of the world's largest banks, the growth in revenues and earnings suggests that global banking conditions are strengthening.
If sentiment persists, this could flow through to names such as Commonwealth Bank. Since posting its numbers, JP Morgan shares are up by 6% to trade over US$225 apiece.
It also highlights that while interest rate pressures remain, major banks are finding ways to sustain profitability.
Locally, CBA has faced challenges, particularly around competition for deposits and the pressure on lending margins in a high-rate environment.
However, the growth in JP Morgan's NII and overall earnings could mean less aggressive deposit competition and an opportunity for Australian banks to maintain or slightly improve their net interest margins (NIMs).
Despite this, analysts currently have mixed views on CBA shares. According to CommSec, the stock is rated a sell by consensus.
UBS is one of these brokers. It has a sell rating on the bank and a price target of $110. This implies a potential downside of around 23% from current levels.
According to my colleague Tristan, UBS highlights concerns about CBA's valuation, noting that the bank is trading at a price-to-earnings (P/E) ratio of more than 23 times its FY25 estimated earnings.
This is well above the historical average.
Meanwhile, Regal Partners was shorting Commonwealth Bank shares earlier this month, noting the bank's earnings are "starting to crack".
On the other hand, JP Morgan's results paint an interesting backdrop for the banking sector.
Time will tell whether the results do, in fact, signal a period of growth and recovery for ASX banks like Commonwealth Bank.
Foolish takeaway
JP Morgan's latest results could serve as a green flag for Commonwealth Bank shares if they drive positive sentiment to the sector.
There's no saying this will directly occur, but the financials can't be overlooked in the broader context of higher interest rates, and potentially lingering inflation.
Commonwealth Bank is up 45% in the past year.
