Why Financials Spiked to Lead the Flat Dow Jones Today

JPMorgan Chase and Goldman Sachs are lifting financials and the DJIA.

Jul 15, 2014 at 1:33PM

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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Dan Dzombak has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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