Wall St rises as financial stocks gain

Better than expected earnings reports from three major banks and a rise in retail sales buoyed investor hopes.

US stocks gained after three banks reported better than expected earnings. Picture: AP Photo/Richard Drew.

US stocks finished slightly higher overnight but posted a loss for the week after financial shares pared early gains Friday in the wake of earnings reports from three big US banks.

Overnight, the Dow Jones Industrial Average rose 39 points, or 0.2 per cent, to 18138, for a weekly decline of 0.6 per cent. The S&P 500 and the Nasdaq Composite gained less than 0.1 per cent on the day.

Financial stocks in the S&P 500 rose as much as 1.5 per cent after J.P. Morgan, Citigroup and Wells Fargo reported earnings that beat analysts’ estimates, before trimming that climb to 0.5 per cent. The KBW Nasdaq Bank Index of large US commercial lenders advanced 0.5 per cent.

Some analysts and investors said that while Friday’s earnings were an encouraging sign about the health of banks, they weren’t strong enough to offset concerns about tepid economic growth or the challenges posed to the financial sector by low interest rates.

Investors are hoping for a rebound in corporate profits, which are projected to fall for the sixth consecutive quarter, according to analysts polled by FactSet.

“I think the jury’s still out,” said Mike Baele, senior portfolio manager at US Bank’s Private Client Reserve. “It’s tough to have a good economy without a healthy financial sector, so this is marginally good news in what is a rough period for banks.”

Citigroup rose 0.3 per cent. J.P. Morgan fell 0.3 per cent and Wells Fargo declined less than 0.1 per cent.

US retail sales managed to meet analysts’ expectations, rising 0.6 per cent in September from the previous month, the Commerce Department said Friday. Retail sales are a key gauge of consumer spending, which has been a main driver of US economic growth.

US government bonds weakened, with the yield on the benchmark 10-year Treasury note rising to 1.792 per cent, according to Tradeweb. The yield was 1.739 per cent Thursday. Yields rise as prices fall.

The lenders’ earnings come as many investors now expect the Federal Reserve to nudge up interest rates by year-end, which could boost bank profits by increasing the gap between what they pay on deposits and charge on loans. Federal-funds futures, used by traders to place bets on central bank moves, now point to a roughly 66 per cent chance of a rate rise by December, according to CME Group.

Nevertheless, some analysts said they don’t expect rates to climb quickly, and banks profits are likely to remain pressured.

“Earnings season gave us a little boost this morning, but I think there’s a lot of nervousness here,” said Matthew Peron, head of global equities at Northern Trust Asset Management.

The Stoxx Europe 600 rose 1.3 per cent to finish the week little changed, with banks climbing 2.2 per cent. One of the biggest risers Friday was London-based Man Group PLC, the world’s largest listed hedge-fund firm by assets. Its shares gained 14 per cent after it reported a big increase in funds under management and announced the purchase of real-estate investment manager Aalto Invest Holding AG.

Expectations of higher interest rates have pushed up the US dollar, which has gained 1.7 per cent against the euro and 1.4 per cent against the yen over the last week.

A weaker yen was a boon for the Japanese Nikkei Stock Average, which closed with a 0.5 per cent gain. Asian stocksmore broadly had a small rebound after losses earlier in the week spurred by lacklustre Chinese trade data.

Data released Friday, however, revealed that Chinese producer prices turned positive for the first time since 2012, an encouraging sign for economic activity. Hong Kong’s Hang Seng index gained 0.9 per cent, paring weekly losses to 2.6 per cent.

The People’s Bank of China has pushed the yuan to its lowest level against the dollar since 2010, but investors appear much less concerned than they were about a sudden depreciation of the Chinese currency.

“It is remarkable how lightly markets have taken it considering how worried they were about it at the beginning of the year,” said Valentijn van Nieuwenhuijzen, head of strategy at NN Investment Partners.

In the UK, the pound fell 0.3 per cent against the dollar to $US1.2205, and was roughly 18 per cent below where it was when Britons voted to leave the European Union on June 23. Recent comments by UK officials have failed to reassure investors that the country’s separation from the bloc won’t have as strong an impact on trade as they previously implied.

Stephen Gallo, European head of currency strategy at BMO Capital Markets, said that “the brinkmanship tactics” between the UK and the EU are likely to continue for a long time.

“We don’t see a rebound at all,” he added.

US crude gained 1.1 per cent to $US50.35 a barrel.

Dow Jones