Stocks rose throughout the day on Friday, with the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) closing at new highs.
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A growing belief that interest rates may rise more slowly than previously expected caused real estate stocks to advance, but helped put pressure on the financial sector. The Vanguard REIT ETF (NYSEMKT: VNQ) gained 1%, and the Financial Select Sector SPDR ETF (NYSEMKT: XLF) fell 0.4%.
Several big banks reported second-quarter earnings before the market opened today, triggering a sell-off in the financial sector. JPMorgan Chase (NYSE: JPM) beat expectations but lowered its outlook, and Wells Fargo & Company (NYSE: WFC) turned in mixed results.
JPMorgan reports good results but tamps down expectations
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JPMorgan stock closed down 0.9% today despite reporting results that beat market expectations. The company earned $1.82 per share, up more than 17% from the year before, on a revenue increase of 4.7% to $26.4 billion. Analysts were expecting EPS of $1.58 on revenue of $25 billion.
Average core loans grew 8% and net interest income was up 8% due to the loan growth and rising interest rates, and was partly offset by a decline in investment banking. Total loans, though, grew only 4%, a slowdown compared with 6% growth in the first quarter and 7% in the fourth quarter of 2016. Management also lowered its outlook for net interest income growth for the full year from $4.5 billion to $4 billion.
Chariman and CEO Jamie Dimon said in the release:
We continued to post very solid results against a stable-to-improving global economic backdrop. The U.S. consumer remains healthy, evidenced in our strong underlying performance in Consumer & Community Banking. Loans and deposits continue to grow strongly, and card sales and merchant processing volumes were up double digits, reflecting our consistent investment in the business. In the Corporate & Investment Bank, we maintained our leadership in Banking, while Markets revenue was down amid lower volatility and client activity.
The slowdown in loan growth and the lowered outlook disappointed investors despite the top- and bottom-line beats, and pessimism about the near future spread to other financial stocks.
Wells Fargo beats on bottom line but misses on revenue
Wells Fargo's second-quarter results exceeded Wall Street expectations on profit but fell short on revenue, and the stock declined over 1%. The company earned $1.07 per share on revenue of $22.2 billion, compared with expectations of $1.01 in EPS on $22.5 billion of revenue, according to Yahoo! Finance. Revenue was flat from the period a year earlier.
Net interest income increased 6% and total average deposits rose 5%, but Wells Fargo's loan growth has stagnated. Total average loans were up 1% compared with growth of 4% last quarter. A decline in auto loans due to a tightening of underwriting standards caused the consumer loan book to fall 2.5%. Non-interest income also fell 7%, due partly to a decline of $202 million in trading gains and $80 million less in mortgage banking fees.
Chief Executive Officer Tim Sloan said, "Second quarter 2017 results demonstrated the benefit of our diversified business model as we continued to generate strong financial results, invest for the future, and adhere to our prudent risk discipline. We remain committed to reducing expenses and improving the efficiency of our company, and we are very focused on our recently announced goals."
Wells Fargo's results had plenty of good news about the company's underlying financial strength, as return on assets and loan quality metrics improved. But the revenue miss and the disappointing loan growth overshadowed other good news on a day when the market was tough on the whole financial sector.
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