WFC Wells Fargo and Company

Financial stocks fall on bank-earnings reports; rising tech shares lift Nasdaq Composite

By Riva Gold and Corrie Driebusch 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 15, 2017).

The Dow Jones Industrial Average and the S&P 500 closed at records, as investors anticipated low interest rates for the foreseeable future.

Investors scooped up stocks and bonds Friday after weak data on U.S. retail sales and inflation suggested the Federal Reserve may be slow in raising interest rates and reducing its balance sheet.

Stocks that pay out steady dividends rose, with gains by utilities companies and other bond proxies in the S&P 500 offsetting a drop in shares of financial companies that followed a number of bank-earnings reports.

The S&P 500 rose 11.44 points, or 0.5%, to 2459.27, notching a weekly gain of 1.4%. The Dow industrials added 84.65 points, or 0.4%, to 21637.74 and rose 1% for the week. It was the biggest weekly gain for both indexes since late May.

Rebounding tech shares bolstered the Nasdaq Composite, which rose 38.03 points, or 0.6%, on Friday to 6312.47 and posted a 2.6% rise on the week -- its biggest jump since the week ended Dec. 9.

As stocks climbed, the CBOE Volatility Index, a measure of expected stock volatility, slumped to its lowest level since 1993. The VIX has come close to record lows on several occasions in recent months.

Early Friday, the latest reading of the U.S. consumer-price index, which is closely watched for clues about the Fed's next move, showed inflation was flat in June, according to the Labor Department.

In another downbeat reading on the U.S. economy, retail sales decreased in June from the prior month, the Commerce Department said Friday.

U.S. government bonds strengthened, with the yield on the 10-year Treasury note falling to 2.319% from 2.348% on Thursday. Yields fall when bond prices rise.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, fell 0.7% on Friday and 1.2% for the week.

Fed Chairwoman Janet Yellen said during the week that officials expect a recent downturn in inflation would prove transitory and that they expect to tighten monetary policy at a slow but steady clip. She added that if consumer prices continue to disappoint, the Fed could adjust its strategy. Federal Reserve Bank of Dallas President Robert Kaplan suggested Thursday that he likely needs to see higher inflation before supporting another rate increase.

"What we're seeing is a change in narrative, to 'if we can keep the Fed on hold, that's what we want to see,'" said Ian Winer, head of equities trading at Wedbush Securities. "Clearly, the market believes that the Fed is not going to do anything anytime soon."

Expectations for strong second-quarter earnings also have bolstered U.S. stocks, some investors said.

On Friday, earnings season picked up with reports from J.P. Morgan Chase, Wells Fargo, Citigroup and PNC Financial Services Group.

Shares of J.P. Morgan fell 85 cents, or 0.9%, to $92.25 after the biggest U.S. bank by assets beat analysts' forecasts for earnings and revenue but cut its guidance for lending growth in 2017.

Wells Fargo shares dropped 61 cents, or 1.1%, to 54.99 after it reported higher profit but stagnant lending, while Citigroup lost 30 cents, or 0.4%, to 66.72 after reporting a drop in second-quarter profit on a slowdown in trading.

After a rocky few months, U.S. bank stocks had climbed in recent weeks as investors' expectations for their performance improved. Since June 23, the KBW Nasdaq Bank Index, a measure of large U.S. bank stocks, has risen 5.2%. The advance came as banks cleared the Fed's stress tests -- which allowed many of them to boost their payouts -- and as investors expected that a gradual climb in interest rates would improve the banks' lending income.

Financial funds received the biggest influx of money among sectors for a second week running in the week ended Wednesday, according to EPFR Global.

Shares of technology companies rallied during the week, with the S&P 500 tech sector jumping 3.8% for its biggest weekly gain of 2017.

Technology companies in the S&P 500 are expected to report some of the highest year-over-year earnings growth in the second quarter, according to FactSet.

Elsewhere, U.S.-traded crude oil rose 1% to $46.54 a barrel Friday, ending the week up 5.2%.

In Europe, London's FTSE 100 index edged down 0.5% Friday as the British pound strengthened modestly against the dollar, weighing down the export-heavy index.

Write to Riva Gold at riva.gold@wsj.com and Corrie Driebusch at corrie.driebusch@wsj.com

(END) Dow Jones Newswires

July 15, 2017 02:47 ET (06:47 GMT)

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