Financials Snap ETF Losing Streak


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Major exchange traded funds snapped a week-long losing streak Friday as financials rallied. That followed banks' earnings releases. It also came amid investors' speculation that China will boost economic stimulus.

Financial Select Sector SPDR ( XLF ) outpaced all sectors in the S&P 500, surging 2.45%. Financials are slated to post a 51% year-over-year earnings increase in the second quarter -- the most of any S&P sector, according to Thomson Reuters research. Earnings for energy and utilities are expected to fall 16% -- the most among the S&P groups.

JPMorgan Chase ( JPM ) surged nearly 6% in double average volume to 36.04. Q2 earnings fell 5% year over year to $1.21 a share -- about $5 billion in total. Revenue dropped 18% to $25.1 billion. CEO Jamie Dimon said the country's largest bank will likely enjoy record earnings this year despite a $4.4 billion trading loss in Q2. The bank said it would restate its Q1 results and cut net income by $459 million, owing to trading losses.

"We think the reductions in position size, combined with other risk management measures detailed by management -- including more stringent position limits, an updated mandate for the unit, and new leadership -- will ensure that the largest losses stemming from the 'London Whale' trades are behind the firm," Jim Sinegal, an analyst at Morningstar wrote. Although he believes JPMorgan's shares are undervalued, he noted: "Macroeconomic pressures, including low interest rates and the European sovereign crisis, are likely to weigh on performance for the foreseeable future."

Wells Fargo ( WFC ) climbed 3.4% after reporting that Q2 earnings rose 17% to 82 cents a share as sales rose 2% to $22.6 billion. The largest U.S. mortgage lender reported increases in home loans and a strong pipeline of applications thanks to low interest rates and government programs driving demand for refinancing. Demand for auto and commercial loans also increased.

Earnings results outshined a report that consumer sentiment fell to its lowest level of the year. The Thomson Reuters/University of Michigan consumer sentiment index dropped to 72.0 so far this month from June's reading of 73.2. It missed analysts' expectations of a 73.5 reading.

Market Overview

In afternoon trade, theSPDR S&P 500 ( SPY ) climbed 1.45%.SPDR Dow Jones Industrial Average ( DIA ) andPowerShares QQQ (QQQ), a basket of the largest 100 nonfinancial stocks on the Nasdaq, both popped 1.38%.

All three major ETFs appear to have found support at their short-term, 50-day moving averages, a key level watched by market technicians.

"Equities have extended their sell-off to the point where we should not be surprised to see a pause or a small bounce over the next several sessions," Waverly Advisors wrote in their daily client note. "We will continue to look for short-term bearish plays in major indexes and suggest long only players carefully manage exposures."

IShares MSCI EAFE Index (EFA), tracking developed foreign markets, added 1.33%.

IShares MSCI Emerging Markets Index (EEM) surged 1.72%. Slower-than-expected growth in China's economy sparked speculation of more economic stimulus.

China's real gross domestic product grew 7.6% year over year in Q2, down from 8.1% in Q1 . Q2's pace was the slowest since 2009 and puts pressure on China's leaders to ensure a rebound in the second half of the year. Annual GDP growth of 7.8% is seen for the year. Industrial production grew 9.5% year over year in June. That was down from 9.6% in May and missed expectations of 9.8% growth.

"There was no clear sign in the data releases in recent days that the growth slowdown in China is over," Nick Chamie, an analyst with RBC Dominion Securities, wrote. "Instead data suggests that the economy continues to decelerate heading into the third quarter in line with leading indicators. Further growth-expectation downgrades should be expected, which will continue to weigh on sentiment."

China's third quarter will likely be as weak as Q2. The economy will likely recover in the fourth quarter, he noted.

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , ETFs
More Headlines for: DIA , JPM , SPY , WFC , XLF

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