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The Dow Jones Industrial Average's (DJINDICES: ^DJI ) ride this morning has been something of a mild roller coaster -- though it hasn't spanned more than 40 points, the ups and downs have been staccato in fashion. But thanks to new earnings reports, at least one sector is climbing higher and bringing the Dow along with it. As of 11:30 a.m. EDT, the index is up modestly with an 8-point gain.
First, some economic news
The Consumer Sentiment index fell in July to 83.9 from June's reading of 84.1. The drop was largely due to a decline in expectations for the future of the economy, with consumers believing that the higher mortgage interest rates and gasoline prices are a bad sign for the economy over the next six months.
Sentiment remains high regardless of the unexpected decline this month. May's reading of 84.5 was a six-year high, so this month's figure is still close to that measure. By contrast, sentiment during the recession averaged in the high 60s. Investors shouldn't be concerned that the recent slip is the beginning of another downturn for consumer sentiment; it's only a slight adjustment from the prior months' highs and should remain at these levels as the year progresses and we see further improvements in the labor and housing markets.
Banks reporting for duty
This morning Dow component JPMorgan (NYSE: JPM ) and outsider Wells Fargo (NYSE: WFC ) reported second-quarter earnings that beat analyst expectations on both the top and bottom lines. The two juggernauts set the tone for the financial sector's earnings season, with Bank of America (NYSE: BAC ) reporting next Wednesday and Citigroup (NYSE: C ) reporting on Monday.
The big headlines from this morning's reports were focused on mortgage origination and interest rate margins. Though JPMorgan reported increased mortgage origination compared to last year, the higher interest rates lately have really cut into the quarter's production compared to the last three-month period. Wells reported higher mortgage activity even on a sequential basis but noted that the loan pipeline for mortgages fell $9 billion compared to last quarter.
Net interest margins, a measure of how profitable the banks' loans are, slipped once again for both banks as the low-interest-rate environment continues to put pressure on them. Though the change to a higher-rate environment would cause a transition period marked with volatility and declines in some segments of the banks' operations, it would provide a much-needed boost to revenue generation for new loans.
Bank of America and Citigroup have a lot to live up to next week, but this morning's reports give investors some clue as to how the market will react to the various key measures. The mortgage origination data will be of special importance for B of A, as the bank has repeatedly stated its goal for commanding a larger slice of the mortgage market. Citigroup won't have the same types of pressures since it is not focused on the U.S. mortgage market. But look out for new signs of pressure on emerging markets and international growth for Citi.
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