J.P. Morgan's 6% gain boosts financials
NEW YORK (MarketWatch) -- The day belonged to J.P. Morgan Chase & Co.
The largest bank in the U.S. boosted the financial sector into the top spot of the S&P 500 Index by a big margin Friday. It also led Dow gainers after it reported a second-quarter profit of nearly $5 billion, down 8.7% from the same period last year but still beating consensus estimates.
Investors appeared relieved that the company's $4.4 billion trading losses in the quarter were not bigger than what most analysts had predicted. Including previously announced sums, the losses now total $5.8 billion, according to J.P. Morgan's chief financial officer.
"The biggest thing [for investors] was, don't disappoint," said Jeffery Harte, principal at Sandler O'Neill. "I think investors in general came in today thinking that if the losses were $5 billion or less, and the position was substantially reduced, and we got a better explanation for the losses, then that's enough. Which they all got."
Sandler O'Neill has a buy rating and 12-month price target of $49 on the bank.
"We have put most of this problem behind us and we can now focus our full energy on what we do best -- serving our clients and communities around the world," CEO Jamie Dimon said in a statement.
Among his cheerleaders was billionaire investor Warren Buffett, who appeared in an interview on Bloomberg TV earlier Friday and said that the bank is "doing the right things" to right its blunders and that its reputation is still intact.
Although Dimon did not elaborate in the conference call following the earnings release how the bank is handling investigations of its involvement in the Libor scandal, some analysts are taking a softer stance with the bank.
"The general tone was, we're going to be all right on this. They don't know what regulators are going to do, but how they expressed comfort with their controls suggested that they think their internal controls would have caught and prevented some of the activities that came [to light] in the Barclays probe," Harte said.
"In the near-term, headlines surrounding Libor, CIO [the chief investment office in London] and timing of potential buyback will continue to impact the stock, but we believe the risk/reward looks favorable here," analysts from Robert Baird & Co. wrote in a research note.
Shares of J.P. Morgan closed up 6% higher, putting the stock well above its 50-day moving average of $35.44, and just 45 cents shy of its 200-day moving average.
Slightly overshadowed by J.P. Morgan was
On Thursday, the San Francisco-based bank's stock took a hit after the company said it would pay $175 million to settle charges that it had violated fair-lending laws. Read more about Wells Fargo settling charges.
After a good showing by J.P. Morgan and Wells Fargo, some analysts say that other U.S. banks reporting earnings will be hard-pressed to top their performance.
"The remaining banks, especially Bank of America and Citigroup, will fail to achieve similar results and will lack the ability to hide their flaws. In other words, the best of bank earnings are over," Jeffrey Sica, president and of SICA Wealth Management, said in a note.
All the other financial components on the Dow Jones Industrial Average
also gained, with