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Stock Market Boosted by Better-then-Expected Bank Earnings Friday – Money Morning

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U.S. equities marched higher – by a smidge – in the stock market today, one day after benchmarks logged fresh records.

The Dow Jones Industrial Average finished at 15,464.07, up 3.15 points, or 0.02%. The Standard & Poor’s 500 Index ended at 1,680.19, up 5.17 points, and the Nasdaq closed at 3,600.08, up 21.78 points.

Thursday, the Dow and S&P marked new milestones and the Nasdaq ended at its highest level since October 2000, egged on by dovish central bank comments.

But some analysts questioned the stellar gains.

“While you cannot guarantee that short-covering is taking place, this looks, smells and feels like a huge short covering,” Art Cashin, director of floor operations at UBS Financial Services told CNBC. “Next week we have the equivalent of what used to be the Humphrey-Hawkins testimony so we could get a lot of volatility again.”

Cashin is referring to the semi-annual monetary policy report Fed Chairman Ben Bernanke delivers to Congress.

Coming out Friday was the Bureau of Labor Statistics monthly producer price report, which showed a 0.8% increase in June, well above estimates ranging from 0.3%-0.5%.

A separate economic report showed U.S. consumer sentiment slipped in July as Americans grew wary about the country’s recovery prospects. The Thomson Reuters/University of Michigan reading on the overall consumer confidence index fell in July to 83.9 from 84.1 in June. Analysts were looking for a gain to 84.7.

With Q2 season getting underway, earnings were a main focus Friday and flashed mixed signals.

As was the case last quarter, expectations for Q2 S&P earnings per share have continued to be trimmed heading into earnings season.

Analysts are anticipating EPS of $26.64, a 1.4% increase from the same quarter a year ago. That’s well below Q1’s 3% growth.

“So far just 50% of companies have beaten on EPS, 45% have beaten on sales, and 23% have beaten on both,” Saviat Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch, told the Financial Times. “Coupled with the recent deterioration in revision and guidance trends, this could portend a lower proportion of positive surprises this quarter.”

Analysts looking at big-bank earnings as a sign of economic health got a nice surprise Friday when two of the country’s biggest financial institutions posted healthy second-quarter earnings.

Meanwhile, a global shipping economic bellwether missed on estimates and provided a dismal outlook… here’s a recap:

Movers in the Stock Market Today

  • JPMorgan Chase (NYSE: JPM) shares jumped nearly 1% after reporting earnings and revenue that beat expectations. The bank behemoth earned $1.60 per share, better than the projected $1.45 EPS. Profits jumped 31%, and net income swelled to $6.5 billion, from $4.96 billion a year ago. Customer and community banking showed strength, with deposit up 10%. Mortgage growth was up 12% and credit card sales volume ballooned to a record amount. Also thriving was JPM’s investment bank and asset management divisions. There was some loan softness. “However, we continue to see broad-based signs that the U.S. economy is improving and we are hopeful that, as jobs are added and confidence builds, the U.S. economy will strengthen over time,” CEO Jamie Dimon said in a statement.
  • Wells Fargo & Co (NYSE: WFC), the nation’s largest mortgage lender, reported income of $5.5 billion, a 19% increase from a year ago. EPS of $0.98 handily beat the $0.92 analysts had expected. Some analysts are growing wary the bank’s robust performance will wane as the Fed starts winding down and eventually ends its $85 billion a month market stimulation asset program. Fears are that tapering could chip at the bank’s earnings as it would leave fewer buyers for loans and other bank programs. But, CEO John Stumpf remains optimistic: “Wells Fargo again demonstrated an ability to grow during a dynamic economic and interest rate environment, and we feel very well positioned to continue to perform for our shareholders over the long term.” Shares jumped some 2%.
  • United Parcel Service Inc. (NYSE: UPS) slid more than 5% after reporting EPS of $1.13, below the consensus for $1.20, and lowering its full-year guidance. The company cited customer preference for lower shipping options, a slowing U.S. industrial economy, and some slowdown in package volumes as a result of labor negotiations for the dismal performance and outlook.
  • Dell Inc. (Nasdaq: DELL) stock was little changed as the ongoing takeover saga continues. Activist investor Carl Icahn sweetened his bid for the PC maker by adding a warrant component to his offer. Icahn reaffirmed his call for the company to launch a tender offer for 1.1 billion shares at $14, and tacked on one warrant for every four shares tendered, giving shareholders the future right to purchase additional Dell shares under certain conditions at $20 a share. The total value to tendering shareholders amounts to $15.50-$18 a share, compared to the $13.65 a share go-private offer from founder Michael Dell and private equity firm Silver Lake Partners.
  • Microsoft Corp. (Nasdaq: MSFT) shares fell 1% after announcing restructuring plans late Thursday. The tech giant plans to dissolve eight product divisions in favor of four new ones, aimed at encouraging greater company collaboration. Every senior member of CEO Steve Ballmer’s executive team would have their responsibilities shifted. “To execute we’ve got to move from multiple Microsofts to one Microsoft,” Ballmer said. Investors apparently weren’t impressed with the desk-reshuffling.

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