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 13th, 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.
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