Markets finally snapped their six day losing streak on Friday
after better-than-expected quarterly figures from financial major
JPMorgan boosted sentiment. JPMorgan's earnings beat estimates
despite a derivative trading loss of $4.4 billion, and the strong
earnings results overshadowed China's tepid GDP growth and a dismal
consumer confidence reading. The Dow surged over 200 points, which
along with the S&P 500 ended in positive terrain for the
week.
The Dow Jones Industrial Average (DJI) soared by 203.82 points
or 1.6% to close at 12,777.09. The Standard & Poor 500 (S&P
500) jumped 1.7% and finished Friday's trading session at 1,356.78.
The tech-laden Nasdaq Composite Index surged 1.5% to end at
2,908.47. The fear-gauge CBOE Volatility Index (VIX) slumped 8.7%
and settled at 16.74. It was yet another light trading session as
consolidated volumes on the New York Stock Exchange, the American
Stock Exchange and Nasdaq were roughly 5.40 billion shares, lower
than last year's daily average of 7.84 billion. The advancing
stocks dominated the trading session, as for 81% stocks that
advanced on the NYSE, only 16% stocks moved in the opposite
direction.
The Dow enjoyed its best day for the month thanks to JPMorgan
Chase & Co.'s (NYSE:
JPM
) gains of almost 6%. Investors were worried over how the "London
Whale" trading issue would impact JPMorgan's results. However, when
the results came in, investors had more reasons to cheer than be
apprehensive about. The company did report a decline year-on-year,
but second quarter figures easily surpassed estimates. The
company's earnings per share came in at $1.21, far ahead of the
Zacks Consensus Estimate of earnings of $0.78 a share. The $4.4
billion trading loss, which was previously estimated at roughly $2
billion, could hardly stop JPMorgan from clocking in a profit of $5
billion.
According to an analyst at Zacks, "JPMorgan has not left any
stone unturned to address the fiasco during the period. It
offloaded the majority of its derivative positions that were the
culprits of its trading loss. It also temporarily suspended its $15
billion share repurchase program and significantly reduced its
total synthetic credit risk in CIO
(chief investment office)
".
Moreover, investors believed that JPMorgan's results also
brightened the prospects for other banks. Banking on the successful
result of JPMorgan, the general feeling was that even other banks
would fare well. Thus, more banking stocks joined the strong rally
and the financial sector was the strongest performer among S&P
500's 10 industry groups. The Financial Select Sector SPDR (XLF)
jumped 2.8% and stocks including American Express Company (NYSE:
AXP
), Bank of America Corporation (NYSE:
BAC
), Citigroup, Inc. (NYSE:
C
), The Goldman Sachs Group, Inc. (NYSE:
GS
), Morgan Stanley (NYSE:
MS
) and U.S. Bancorp (NYSE:
USB
) surged 1.8%, 4.6%, 5.4%, 3.6%, 3.7% and 2.2%, respectively.
JPMorgan's strong results came amidst an uncertain global
economy, highlighted by poor economic readings in US, Europe and
even in China. Even on Friday, economic readings were poor both on
the domestic front as well as from the far-east. China, the world's
second-largest economy, came out with its GDP numbers and reported
7.6% economic growth in the second quarter of 2012. This was below
the first quarter growth rate of 8.1% and was also the slowest pace
since the beginning of 2009. This is the sixth-consecutive quarter
that the country has witnessed declining growth.
On the domestic front, The Thomson Reuters/University of
Michigan's preliminary consumer sentiment reading dropped to 72.0
in early July from 73.2 last month. This was below consensus
estimates of a reading of 73.5. Consumers are more inclined to
spend when they feel confident about their financial and employment
prospects. The dismal reading reflects consumers' apprehensive
stance about economic prospects. Additionally, this was the lowest
reading since December 2011.
Nonetheless, the weak economic readings failed to affect the
markets on Friday the 13
th
, as strength in JPMorgan single handedly eroded negative
sentiments. Friday's gains also helped all the benchmarks, except
Nasdaq, to completely wash out their weekly losses. While the Dow
and S&P 500 edged up 0.04% and 0.2%, respectively, Nasdaq
dropped 1% for the week.
AMER EXPRESS CO (AXP): Free Stock Analysis
Report
BANK OF AMER CP (BAC): Free Stock Analysis
Report
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
MORGAN STANLEY (MS): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
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