December 6, 2023

Wall Street Wanders After JPMorgan Results

Stocks were steady after Tuesday’s session in which major indexes struggled to overcome weaker oil and other commodity prices as well as bleak news from Japan about the severity of its nuclear crisis. The Dow Jones industrial average close nearly 1 percent lower on Tuesday, its biggest decline in nearly a month.

By midday, the broader market was slightly lower, and the financial sector lagged after JPMorgan Chase reported that its quarterly profit surged 67 percent even as problems continued in its mortgage lending business.

Strong first-quarter results from its investment banking and trading businesses helped offset losses from the retail bank, which set aside an additional $650 million to cover potential legal claims and to deal with bad loans. Altogether, the bank’s profit of $1.28 a share beat analysts’ forecasts.

William Smith, the president of Smith Asset Management, said the results from JPMorgan were “relatively” supportive of the market.

“They had a good quarter,” Mr. Smith said. “It is positive sentiment someone can hang a hat on.”

Still JPMorgan’s shares were down 0.5 percent. Most other bank shares were also lower. Goldman Sachs added 0.3 percent, while Morgan Stanley lost 0.29 percent. Citigroup lost 1.1 percent, while Bank of America, which reports results on Friday, lost 1 percent.

Brian Foran, a bank research analyst for Nomura Securities, said JPMorgan’s results, which kicked off the bank earnings season, were usually considered a barometer from which other banks were judged.

“Over the past eight quarters, JPMorgan earnings have fairly consistently marked the near term peak for bank stocks, in part because their results tend to the best,” he said. “Whatever JP reports will be the best you are going to see.”

That means if JPMorgan reports mortgage servicing charges, Mr. Foran said, other banks will probably do the same.

“Now everyone is racing around trying to figure out whether other banks will have to take similar mortgage expensing,” he added.

Analysts also noted that banks still needed to demonstrate how they were going to operate in an environment in which the economy is struggling to recovery in a weak housing market.

“It gave a little bit of a boost to the market that things are at the point where they are stabilized,” said William J. Schultz, chief investment officer for McQueen, Ball Associates Inc., referring to the JPMorgan results.

But he added: “I think what you are seeing now is the banks are trying to operate in a low interest rate environment, and to see how they can generate returns here going forward.”

“It is going to be a little bit slow on the loan growth side until the economy picks up,” Mr. Schultz said. “We are also seeing write-downs lessen, so there is a bit of better news on the housing side but we are not out of the woods yet. We are going to need an increase in consumer confidence to boost their loan growth going forward.”

In early afternoon trading, the Dow Jones industrial average was slightly lower, while the broader Standard Poor’s 500-stock index was down 0.1 percent. The technology-heavy Nasdaq composite rose 0.41 percent.

While the financial sector was down, e technology shares climbed. The banking, consumer confidence and retail sectors touch some of the central themes of the economic recovery.

On Wednesday, the Commerce Department said that retail sales in March increased 0.4 percent, but most of the increase could be attributed to higher gasoline prices.

Still, economists inserted caution into their outlook based on the latest retail sales. When adjusted for inflation, the numbers were barely rising and could even be decelerating, said Steven Ricchiuto, the chief economist, Mizuho Securities USA, in a research note.

Analysts are also concerned that the recent spike in energy prices, which have translated into an average $3.80 for a gallon of regular gasoline, will mean that consumers have little left for other spending.

“Retail numbers are pretty telling right now,” Mr. Smith said. “I think it is something you have to watch carefully to see what is going to happen with the effect of energy prices on consumers. It leads to other questions: where are we in the recovery?”

The yield on the 10-year bond climbed to 3.52 percent from 3.50 percent on Tuesday.

Eric Dash contributed reporting.

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