At midday Friday, the Dow Jones Industrials (DJINDICES:^DJI) had dropped 29 points as investors tried to assess whether yesterday's initial plunge and subsequent steady bounce was a one-time event or signaled a broader trend toward volatility in the global markets. In the U.S., Wells Fargo's quarterly report marked the opening of the banking industry's earnings season, and Dow components JPMorgan Chase (NYSE:JPM) and Goldman Sachs (NYSE:GS) were mixed as shareholders considered what their competitor's results might mean for their banks' reports early next week.
For JPMorgan Chase, which was up 0.2% as of noon EDT, arguably the most important part of the Wells earnings report were the results from its mortgage-lending operations. Wells Fargo is the country's largest mortgage-lending institution, but JPMorgan Chase also gets a substantial portion of its revenue from mortgage originations. Wells Fargo saw substantial improvement in its mortgage business during the quarter, with residential originations climbing by about 30% to $47 billion and mortgage applications posting a roughly 20% gain to $72 billion. JPMorgan Chase doesn't have quite as strong a focus on the consumer side of the business as Wells Fargo does. Yet with average deposits also climbing at Wells Fargo, JPMorgan Chase can hope to see the same positive impacts on earnings from its consumer-banking segment that Wells was able to produce, and that could prove to be enough to offset any poor performance in the rest of JPMorgan's operations.
Meanwhile, Goldman Sachs climbed 0.4%. To an even greater extent than JPMorgan Chase, Goldman's business emphasizes the investment-banking side of the financial industry, and Wells Fargo has far less extensive exposure there than its two Dow component competitors. Many investors have been nervous about Goldman Sachs' future prospects because of the uncertain interest rate environment, which has hurt trading volume throughout the financial markets and put Goldman's traditional reliance on fixed-income market underwriting and trading at risk. In response, Goldman Sachs has made moves into new areas where it hasn't had as much historical exposure, with an emphasis on emerging and frontier markets. Those areas have the potential to replace some of the net income that Goldman has lost as a result of increased regulation and tough conditions in the U.S. and the rest of the developed world. But they also carry risks, as Goldman Sachs isn't as familiar with those businesses and therefore could make mistakes that would jeopardize profits there.
Dow investors should watch closely next week to see how Goldman Sachs and JPMorgan Chase perform on earnings. If they can produce solid growth despite facing challenges in some of their core businesses, then the Dow's banks could well end up pushing the whole stock market higher next week.