Why Financials Spiked to Lead the Flat Dow Jones Today

For the second day in a row, financials are the strongest sector of the market. However, the Dow Jones Industrial Average (DJINDICES: ^DJI  )  is flat this afternoon after retail sales came in lower than expected and Federal Reserve Chairwoman Janet Yellen said that an interest rate hike could come before investors expect. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC  ) is down a mere four points to 1,973.

Yesterday, financials led the Dow Jones higher as the 14th-largest bank in the world, Citigroup, reported better-than-expected earnings after its trading revenue only dropped 15% instead of the expected 25%. Today, the sector is again leading the Dow Jones and S&P 500 higher after JPMorgan Chase (NYSE: JPM  ) , the sixth-largest bank in the world, and Goldman Sachs (NYSE: GS  ) both reported expectation-beating earnings.

Source: Finviz.com.

The financial sector as a whole is up 0.1%. Health care, consumer goods, and basic materials stocks are weighing down the stock market today as health care giant Johnson & Johnson forecast lower sales for the rest of the year and the price of oil dropped roughly 1.7% both domestically and internationally. Retail sales also grew just 0.2% in June, worse than analyst expectations of 0.6% growth and below May's 0.5% growth. If you exclude automobile sales, retail sales were up 0.4% but still below analyst expectations of 0.6% growth.

But it's not all bad news. JPMorgan Chase is today's Dow leader, up 4% after reporting earnings of $1.46 per share, down from the year-ago quarter's $1.60 per share but far better than analyst expectations of $1.29 per share. Revenue also came in better than expected at $24.5 billion versus forecasts of a drop to $23.8 billion.

In an interim update in May, the bank announced that it expected trading revenue to decline 20% to 25% this quarter. The better-than-expected results owed largely to trading revenue dropping only 15%, in line with Citigroup's results of a drop of just 12%. Management said that June saw much more trading activity than expected, but that has not carried into July.

Goldman Sachs is up 1.2% after reporting that its trading revenue only declined 10%. Earnings per share were $4.10, above last year's $3.70 per share and far better than analyst expectations of $3.05 per share. Revenue was $9.13 billion, above the year-ago quarter's $8.6 billion and miles ahead of analyst expectations of $8 billion. The big contributors to Goldman's impressive results were the company's investments in private companies, which contributed net gains of $1.3 billion, and the company's investment banking unit, where revenue rose 15% to $1.8 billion. Asset sales are one-time gains and cannot be expected to continue to contribute as much every quarter to earnings, which is why Goldman is not up as significantly as JPMorgan Chase.

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