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Are You a Victim of Exaggeration?

A six-day losing streak for the market ended on Friday, when five stocks rose for every one that fell on the New York Stock Exchange.

We have two events to thank for the one-day rally in particular: JP Morgan’s (NYSE: JPM) earnings report and China’s growth rate announcement.

As you know, the media has had a field day proclaiming that the sky was falling on JP Morgan and that a China recession was in the works.

Well, the data now shows that the media hype was misplaced. Surprise, surprise.

And as you’ll see, investors who didn’t fall for the pundits’ exaggerated claims are now on track to collect double-digit gains…

Better-Than-Expected Earnings From JP Morgan

JP Morgan’s stock jumped almost 6% on news that its trading losses – though higher than originally thought – paled in comparison to its profits.

More specifically, losses from its practice of trading bad derivatives totaled $4.4 billion for the quarter. Earnings hit $5 billion over the same period.

This wasn’t really news if you’d been paying attention to CEO Jamie Dimon’s recent statements. For the past month or so, he’s testified before Congress about the situation, offering many mea culpas and chastising both himself and his management team.

However, when it comes to the bank’s balance sheet, he’s been nothing but confident.

Of course, that didn’t stop analysts from lowering earnings expectations to $0.76 per share from $0.88 per share a month ago. And the media did an excellent job overblowing the trading losses, giving the JP Morgan employee responsible for the trades nicknames like the “London Whale” and “Voldemort.”

This led jittery investors – with nightmares of 2008 still fresh in their minds – to pull the trigger and knock tens of billions of dollars off JP Morgan’s market cap.

These days it seems that investors would rather shoot now and ask questions later. Facts be damned!

Not us, though. Back in May, while JP Morgan was crashing, I told Wall Street Daily readers that bank stocks were “looking like a decent place to invest again.” And I specifically mentioned that U.S. Bancorp (NYSE: USB) was a good place to start. Shares are now setting new 52-week highs.

And subscribers to my Smart Cap Alert are about to collect a very handsome return through a strategic play on JP Morgan.

China Growth Meets Expectations

Although China’s growth rate has hit a three-year low, it met expectations at 7.6%. That means its GDP is accelerating five times faster than that of the United States and seven times faster than Europe.

Not exactly slow enough to be deemed a recession, as the media hype would have you believe.

That’s not to say China’s slowdown is something you should ignore, of course. It’s clear that the country still has problems corralling an overheating real estate market and sustaining job creation.

But its growth should only accelerate now that the country’s easing interest rates, stimulating the economy and tempering expectations.

I’m not the only one who thinks so, either. Lu Ting, an analyst for Bank of America (NYSE: BAC), says, “This should be the bottom for the year… GDP growth should pick up in the third quarter.”

Wall Street Daily readers don’t need to wait for the turnaround to profit, however. I alerted readers to an opportunity to cash in during the China “slowdown” back in December through the Market Vectors Vietnam ETF (NYSE: VNM). Shares are up 13% since that article was published.

Bottom line: Whether it’s the decline of bank stocks or China’s “recession,” don’t fall for media hype. Instead, book profits by trading on the seemingly endless flow of exaggerated claims.

Ahead of the tape,

Karim Rahemtulla