The original Wall Street earnings season gripping the US stock market sentiment unexpectedly showed favorable results on July 13, including financial institutions – JP Morgan Chase and Wells Fargo both delivered better-than-expected earnings. Boosted by this, the US stock market gave away the weak tone and ended the six-straight-day decline with a big rise.
JP Morgan Chase released its second quarter results on July 13. Affected by the huge losses of derivatives trading, JP Morgan’s net profit fell 8.7% to $4.96 billion, or $1.21 per share in the second quarter, far exceeding the market expectation of $0.7 per share. In addition, Wells Fargo announced its second quarter results on the same day; thanks to the significant increase in mortgage revenues, the bank’s quarterly profit rose 17% over the same period of last year.
For economic data, the US Labor Department reported that the core producer price index excluding food and energy prices rose 0.2% in June, in line with expectations. But the initial value of Reuters / University of Michigan consumer confidence index For June fell to 72.0 from the final value of 73.2 for June, weaker than expected.
However, the earnings boost offset the negative impact of weak economic data, the financial stocks led the gainers in that day’s trading; the S&P financial sector index rose 2.4% and the KBW bank stock index rose 2.6%. JP Morgan Chase soared 6%, leading the constituent stocks of the Dow Jones index. As of closing on the July 13, the three major US stock indexes rose between 1.48 to 1.65%.
For the whole last week,the US stock market was mixed the Dow Jones index edged up 0.04%. The S&P 500 index rose 0.15% and the Nasdaq composite index fell 0.98%.
For Europe, on the July 13, the international rating agency Moody’s warned that if Italy cannot access the bond market financing, it may further lower its rating on the country’s sovereign credit rating. The current rating on the country is only two levels higher than the junk level. But, Italy successfully withstood the test of the market, the borrowing cost of the three-year Treasury bond fell to below 5%.
In addition to the success of the auction of the Italian, the market expects the ECB to loosen monetary policies, including further cutting interest rates on deposits. Risk appetite in the European market also performed strongly. On July 13, the European stock markets closed at the highest level over that week. The pan-European FTSEurofirst index closed 1.3% higher at 1042.63 points.
Analysts believe that corporate earnings will lead to fluctuations in the US stock market this week. Heavyweight companies which will publish the quarterly results this week include Intel (INTL), Citigroup (CITI), Johnson & Johnson (JNJ) and Coca-Cola (KO).
Bernanke is scheduled to release the semi-annual monetary policy report in the Senate and House of Representatives Committee on July 17 and 18. However, analysts said Bernanke is unlikely to reveal further economic stimulus plan; instead, he will urge Congress to take action to solve the problems brought about by the huge budget deficit and the fiscal cliff plan, by which the US government is slashing spendings.
Also read: US stock market forward-looking: Bernanke will set tone for summer trends.