The JPMorgan Equity Premium Income ETF (JEPI) stock is firing on all cylinders this year, helped by the strong performance of American equities. Its total return has been 17.7%, lower than that of the S&P 500 index, which has risen by 26%, and the Schwab US Dividend Equity’s (SCHD) 19%.
Strong stock market performance
The JEPI ETF has done well this year, helped by the strong performance of American equities.
Broadly, the top equity indices like the Nasdaq 100 and S&P 500 have rallied to a record high, mostly because of the technology sector.
For example, NVIDIA stock price has jumped to a record high, bringing the market cap to over $3 trillion, making it the second-biggest company in the world.
Apple stock has also jumped by over 31% this year, making it the biggest firm in the world in terms of market cap.
Other AI-focused companies like Meta Platforms, Palantir, and Alphabet have also jumped by double digits this year.
This performance is notable for the JEPI ETF because of what the fund does. It has invested in about 100 companies in the S&P 500 index. In addition to those mentioned, other top players in the fund are Trane Technologies, The Southern Company, NextEra Energy, UnitedHealth, Thermo Fisher Scientific, and Linde.
Most of these companies have published strong financial results this year. Data by FactSet shows that 95% of all companies in the S&P 500 index have published their financial results. 75% of these reported a positive EPS surprise and 61% had a positive revenue surprise.
The blended earnings growth of these companies was 5.8%, the fifth quarter of consecutive growth. These numbers mean that earnings growth are relatively strong in the United States, a trend that may continue.
America’s earnings growth continued even as concerns about the American economy remained.
These concerns were invalidated as the economy continued growing this year. A report released last week showed that the economy expanded by 2.8% last quarter, helped by strong consumer spending. Analysts see the economy growing by 2.4% this year.
JEPI limited by strong S&P 500 growth
The JEPI ETF performance has been hindered by its use of the covered call strategy. Covered call is a situation where investors buys assets and then sell call options on the same.
In this case, the JEPI fund has invested in companies in the S&P 500 index and then sold call options on it. A call option is a trade that gives investors a right but not the obligation to buy an asset.
When the call option happens, the fund receives cash, which it distributes to its shareholders in the form of a dividend. Its dividend distributions also come from the payouts that it receives from the companies it has invested in.
The JEPI ETF, however, has underperformed the market because of the S&P 500 index’s performance. Ideally, when the S&P 500 index surges, it reduces its potential payouts because it hits the strike price.
JEPI ETF analysis
The daily chart shows that the JPMorgan Equity Premium Income ETF has been in a strong bullish trend in the past few months. It has remained above the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bulls are in control.
The MACD and the Relative Strength Index (RSI) indicators have continued rising in the past few months. However, it has formed a risky rising wedge pattern, which is made up of two ascending and converging trendlines.
Therefore, there is a risk that the stock will suffer a sharp reversal to about $55.90. This target is about 8% below the current level.
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