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U.S. markets and stock ETFs weakened Tuesday on mixed second-quarter earnings after three major U.S. banks reported their quarterly results, setting the tone for the upcoming earnings season.
J.P. Morgan Chase & Co. and Wells Fargo beat quarterly profit expectations but revealed weakness in net interest income. The announcements fueled concern over the financial sector's ability to maintain profits as the Federal Reserve looks to cut interest rates as early as its upcoming July meeting.
“Much of the outlook remains very unclear for the sector, with falling rates and the potential for further economic weakness in the United States,” Joshua Mahony, senior market analyst with IG, told Reuters. “The banks must show that they can continue to perform in an environment of lower rates and less help from the government.”
Investors are watching U.S. corporate earnings for clues on how companies are handling the weaker growth as trade tensions between the U.S. and China persist.
“We’re moving from a hope-based market, which got us over 3000 [in the S&P 500]….to more the ‘show me’ market,” Brad McMillan, chief investment officer for Commonwealth Financial Network, told the Wall Street Journal.
Further weighing on the markets, President Donald Trump said there was a long way before coming to a trade agreement with China and threatened to put tariffs on another $325 billion in Chinese goods.
“No face-to-face meetings have even been scheduled,” Donald Straszheim, head of Evercore ISI’s China research team, said in a note, according to CNBC. “Trade progress has been in reverse. The two sides are further apart now than in Nov-Dec 2018.”
“A combination of substantial steps, partial actions and empty words which will be a relief but far from a final resolution of what has morphed from trade war to a ‘stop the China rise’ cold war,” Straszheim added.
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