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U.S. Stocks Rise as Banks Kick Off Earnings Season

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07/14/2020 | 03:37pm EDT

By Anna Hirtenstein and Gunjan Banerji

U.S. stocks turned higher Tuesday as investors parsed earnings results from the biggest banks for insights on the health of the American economy and its lenders.

The S&P 500 rose 0.5% after wavering earlier in the session. The Dow Jones Industrial Average rose more than 375 points, or 1.5%. The Nasdaq Composite slipped 0.1%.

A rally in the equity market on Monday had fizzled after California rolled back some of its reopening plans, stoking fears about additional lockdowns. Investors recently have been weighing worries about an uptick in coronavirus infections versus signs that the economy is slowing recovering from the downturn.

Earnings season kicked off in earnest this week with the latest quarterly results from big banks. JPMorgan and Citigroup's earnings beat analysts' estimates, but the firms' results highlighted the extraordinary economic uncertainty ahead and a worrisome outlook on the health of their corporate and consumer clients. Both set aside billions of dollars for rising loan losses as they girded for defaults.

Overall, investors are expecting corporate earnings among companies in the S&P 500 to fall 45% in the second quarter from the year earlier, according to FactSet. Financial companies within the S&P 500 are expected to take an even bigger hit -- a roughly 57% drop from the prior year.

Still, the stock market has been resilient despite the dour outlook, buoyed by optimism about an eventual recovery and stimulus from the Federal Reserve.

Shares of JPMorgan rose 0.5% in recent trading, lifting the Dow, while Citigroup's slipped about 3.6%.

"This shows that there's a three-speed recovery in the economy," said Sebastien Galy, a macro strategist at Nordea Asset Management. "Some banks will be better positioned than others" during times of volatility, particularly in the case of JPMorgan which is a key player in market-making.

Later this week, investors will be parsing results from Morgan Stanley, Bank of America and Goldman Sachs.

In government bond markets, the yield on the U.S. 10-year Treasury note slipped to 0.617% in recent trading, from 0.638% Monday. Bond yields and prices move in opposite directions.

In Europe, the pan-continental Stoxx Europe 600 fell 0.8%. Industrial production in the eurozone is recovering more slowly than expected and is still more than 20% lower than last year, according to a Tuesday data release.

Fresh data showed that the U.K's economic expansion in May was weaker than economists had expected, and output in Britain remains around a quarter below the level it had reached in February, before the pandemic struck and the economy was shut down.

"For the U.K., it's a tough gig currently. The drop in GDP was starker than on the continent and now the bounceback is weaker," said Peter Schaffrik, global macro strategist at RBC Capital Markets. "It's a pretty big miss."

In Asia, major benchmarks slipped after tensions between the U.S. and China rose, prompted by Secretary of State Mike Pompeo's comments on Monday that the Trump administration formally rejects a swath of Chinese claims in the South China Sea. China's main stocks gauge, the Shanghai Composite Index, declined 0.8%.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Gunjan Banerji at Gunjan.Banerji@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
BANK OF AMERICA CORPORATION 2.51% 26.11 Delayed Quote.-25.87%
DJ INDUSTRIAL 0.17% 27433.48 Delayed Quote.-3.87%
JPMORGAN CHASE & CO. 2.20% 99.38 Delayed Quote.-28.71%
MORGAN STANLEY 1.82% 50.35 Delayed Quote.-1.51%
NASDAQ 100 -1.13% 11139.386629 Delayed Quote.27.55%
NASDAQ COMP. -0.87% 11010.982553 Delayed Quote.22.72%
NORDEA BANK ABP. 1.69% 69.38 Delayed Quote.-9.80%
S&P 500 0.06% 3351.28 Delayed Quote.3.73%
S&P/CITIC 300 INDEX 0.36% 4101.81 Delayed Quote.15.08%
S&P/CITIC 50 INDEX 0.47% 3941.24 Delayed Quote.4.97%
STOXX EUROPE 600 0.31% 364.69 Delayed Quote.-12.57%
STOXX EUROPE 600 NR 0.32% 799.97 Delayed Quote.-11.15%
THE GOLDMAN SACHS GROUP, INC. 1.97% 208.27 Delayed Quote.-9.42%
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