Stocks cut some losses in afternoon trading but finished mostly lower as the markets digested comments from Fed chair Janet Yellen.
Speaking to the Senate Banking Committee this morning, Yellen noted that despite the ongoing recovery, the Federal Open Market Committee could raise the federal-funds rate if labor conditions continue to improve at a faster pace than the Fed originally anticipated, though much uncertainty exists. These comments created fear of a rate increase coming sooner than what was already incorporated into stock and bond prices. Yellen, however, did point out that if conditions worsen, then rates will likely remain low. Treasuries wavered after Yellen's comments, but the 10-year bond finished flat.
Separately, the Congressional Budget Office released a report that warned of a long-term fiscal crisis if U.S. debt continues on its current trajectory.
Meanwhile, the Commerce Department reported June retail sales turned in a seasonally adjusted gain of 0.2% versus May, marking the weakest improvement in five months. The increase came in below economists' forecasts as consumers spent less on durable-goods items. Even when excluding durables, the numbers still fell short of expectations.
The prices of U.S. imports edged 0.1% higher for June compared with May's tally, but were still lower than the Street forecast of 0.4% as well as May's monthly increase. Despite being up 1.2% year over year, the slight increase points to lukewarm inflationary pressures in the U.S.
The Fed Bank of New York reported more positive numbers with its business conditions index improving to 25.60 this month compared with 19.28 in June. The reading was well ahead of the expected index of 16.5 and was the best reading in more than four years. Most of the subindexes had solid improvements compared with the previous month.
The Dow ended flat, but the S&P 500 and the Nasdaq lost 0.2% and 0.5%.
Stocks on the Move
JPMorgan Chase's (JPM) second-quarter results were generally in line with Morningstar analysts' modest long-term profitability expectations for the narrow-moat bank. Litigation continued to affect the bottom line, with the company spending $669 million on legal expenses. Although the largest issues related to mortgage origination are behind the firm, the analysts are concerned that misdeeds continue to pop up, and the analysts believe the largest banks will be easy targets for some time. Shares gained 3.5%.
Goldman Sachs Group (GS) posted a 5.5% year-over-year gain in second-quarter profit, while revenue improved by 6%. Each reading came in ahead of Wall Street forecasts. The firm saw a drop in revenue in its fixed-income, currencies, and commodities trading revenue, but that decline was not out of line with industry peers. Goldman saw improvement in its investment-banking and lending divisions. Shares rose 1.3%.
Johnson & Johnson (JNJ) reported strong second-quarter results that exceeded both Morningstar analysts' and consensus expectations largely because of stronger-than-expected pharmaceutical sales. In particular, sales of hepatitis C drug Olysio significantly outperformed expectations. However, the firm could see some competition in that drug market by the end of the year, and shares fell 2%.
Reynolds American (RAI) announced it will acquire Lorillard (LO) in a cash-and-stock buyout valued at $25 billion. Reynolds separately announced it is selling several of its core brand names to Imperial Tobacco Group (ITYBY) for $7.1 billion to avoid possible antitrust litigation from the Lorillard deal. However, Reynolds shares dropped 6.9%, and Lorillard shares sank 10.5%. Imperial's ADR shares fell 5.2%.