JPMorgan has upgraded American Express to Overweight in its second-quarter consumer finance preview, while maintaining a guarded view of the wider sector in light of renewed U.S.-Iran tensions and a weakening macroeconomic profile.
American Express shares were trading about 1% higher in premarket activity on Monday following the upgrade.
Analyst Richard Shane said the "pause, not peace" pattern seen in the first quarter has returned. Shane pointed to a 60-day U.S.-Iran memorandum of understanding signed on 18 June that unraveled after President Trump declared the ceasefire "over" in early July, following a new round of strikes.
Shane warned that "the risk of further escalation is elevated," which could revive the prospect of an energy price spike that would disproportionately squeeze lower- and middle-income consumers.
He identified two additional factors that amplify the geopolitical concern. First, the labor market is showing signs of cooling rather than improvement: June nonfarm payrolls increased by 57,000 and the unemployment rate fell to 4.2% largely due to declining participation rather than robust hiring.
Second, the outlook for interest rates has moved in a hawkish direction, with mortgage rates rising to about 6.5% after the resumption of conflict. That rise, JPMorgan said, is a persistent headwind to mortgage refinance activity.
Against these cross-currents, Shane said "selectivity and discipline remain paramount across our coverage." JPMorgan left all other consumer finance ratings unchanged, and the bank also established 2027 price targets across its coverage group.
JPMorgan continued to caution that "the full impact of these geopolitical and macro shocks on the real economy has yet to be realized," signaling a view that additional economic reverberations could follow as events unfold.
Summary
JPMorgan upgraded American Express to Overweight while maintaining a cautious stance on the consumer finance sector because of heightened geopolitical risk between the U.S. and Iran, a cooling labor market, and higher mortgage rates that can dampen refinancing activity and pressure lower- and middle-income consumers.
Key points
- JPMorgan moved American Express to Overweight; AXP shares rose roughly 1% in premarket trading.
- Renewed U.S.-Iran hostilities raise the chance of an energy price spike, which would most acutely hurt lower- and middle-income consumers - affecting consumer spending and household finances.
- Cooling payrolls and a hawkish rates shift - with mortgage rates near 6.5% - create headwinds for mortgage refinance activity and weigh on the consumer finance and housing sectors.
Risks and uncertainties
- Further escalation in U.S.-Iran tensions could push energy prices higher and pressure consumer budgets, impacting consumer-facing financial services and retail demand.
- Labor market weakness - evidenced by a 57,000 June nonfarm payroll gain and a 4.2% unemployment rate decline tied to lower participation - may curb consumer income growth and spending.
- A hawkish interest-rate outlook and mortgage rates around 6.5% could suppress refinance volumes and act as a persistent drag on housing-related financial activity.