Can the Dow Break Its Streak?

The Dow Jones Industrial Average (INDEX: ^DJI  ) has fallen six days in a row as a number of key companies sent negative signals about second-quarter earnings.

Overnight, China reported second-quarter GDP growth of 7.6%, a three-year low and less than average estimates of 7.7%. But it was better than some economists had feared, and it helped lift markets in Asia and Europe. Dow futures also pointed upward before open with gains of 0.3%. Italian 10-year bond yields crept above 6% once again after Moody's downgraded its credit rating by two notches and reissued a negative outlook.

In its quarterly report this morning, JPMorgan Chase (NYSE: JPM  ) revealed that its London-based trading loss cost it $4.4 billion -- more than double its original prediction of $2 billion. Despite the loss, the bank reported earnings of $5 billion for the quarter, or $1.21 per share, well ahead of expectations for $0.76, as its client-driven services turned in strong performances. The bank also reduced its first-quarter net income by $459 million, or about $0.11 per share, due to the May trading loss. Shares were trading up before open today.

Financial giant Wells Fargo (NYSE: WFC  ) reported EPS this morning of $0.82, a penny ahead of estimates and up 17% on year-ago profits, thanks to a sizable increase in mortgage income. Management cited a strong performance across the board that helped guide it to record quarterly mortgage applications. Yesterday the bank got dinged with a $175 million settlement over allegations that it discriminated against minority homebuyers during the housing bubble.

There's one economic report to look out for today: The University of Michigan consumer sentiment report comes out at 9:55 a.m. EDT. Analysts are expecting a preliminary July reading of 73.5, up slightly from 73.2 in June. A solid beat would be welcome news, as many indicators lately have showed global consumer spending slowing.

The Producer Price Index released earlier this morning showed that finished-goods prices rose 0.1% in June, ahead of estimates of a 0.6% drop, largely due to a greater-than-expected rise in food costs. The core PPI rate, which is often a greater indicator of inflation and does not include food or energy, rose by 0.3%, compared with projections of 0.2%. The report should not affect markets.

Despite the down economy, earnings at the big banks are looking strong, but there's an even better way to play the financial sector. There's a host of small, regional banks that still look undervalued after the financial crisis. Some better-known investors have taken notice, including Warren Buffett and John Paulson, but luckily for you, they can't make meaningful investments in small-cap stocks. Take advantage of this opportunity by checking out at our special free report: "The Stocks Only The Smartest Investors Are Buying." It names some of these promising banks and explains why they're such good investments today. You can get your free copy of the report now. Just click right here.

Fool contributor Jeremy Bowman holds no positions in the companies in this article. The Motley Fool owns shares of JPMorgan Chase. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Wells Fargo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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