Banks Still Cast Shadow - TheStreet

Updated with closing prices.

It's still mostly about the financials.

They are "still the key and the driver of the overall market because they're the vanguard of the credit crisis as well as the deleveraging cycle," says Paul Nolte, director of investments at Hinsdale Associates.

Bank earnings left Wall Street searching for direction Wednesday. The major indices were mixed after earnings reports from the likes of

Boeing

(BA) - Get Report

,

Pfizer

(PFE) - Get Report

,

Apple

(AAPL) - Get Report

and a variety of financial institutions.

The

Dow Jones Industrial Average

fell 34.68 points, or 0.4%, to 8881.26, while the

S&P 500

lost 0.51, or 0.05%, to 954.07. The

Nasdaq Composite

, however, rose 10.18 points, or 0.5%, to 1926.38.

"The next part of this is taking a look at credit cards and loans outstanding and seeing if the banking system is going to continue to contract their credit, and as they do, that puts a robust recovery certainly in jeopardy," says Nolte.

(Click below to hear reporter Rob Holmes and Nolte discuss Wells Fargo and Morgan Stanley earnings.)

Tech was a strong point with Apple and

Yahoo!

(YHOO)

trading up 3.5% and 3.9%, respectively, after topping profit expectations late Tuesday, although both gave third-quarter guidance below the view of Wall Street analysts.

Among Dow stocks, Boeing fell 2.4% after it

surpassed profit expectations

but didn't offer an update on the long-delayed

787 Dreamliner

. Pfizer

just barely beat the consensus view

and raised its full-year earnings forecast, sending shares up 1.1%.

Meanwhile, a parade of bank earnings gave Wall Street mixed feelings early on.

Morgan Stanley

(MS) - Get Report

shares lost 0.07% after it reported

a wider than expected loss

of more than $1.2 billion. It was hurt by the improving value of its debt and a charge to repay government bailout money.

Wells Fargo

(WFC) - Get Report

shares fared worse, losing 3.6%. The bank

surpassed expectations

and set new company profit and revenue records in the second quarter, but bad loans, or assets no longer collecting interest, increased 45% from the first quarter.

"What they're starting to see is operating earnings vs. legacy," says Doug Roberts, Chief Investment Strategist at ChannelCapitalResearch.com. "Right now with the shape of the yield curve the way it is, it's designed for banks to make money, but there are a lot of credit losses on their books

and eventually they'll have to deal with them. For some of them on an operating basis they're doing quite well, but if you take out the potential writedowns, there's still a lot hanging on the surface."

Elsewhere,

US Bancorp

(USB) - Get Report

said its second-quarter profit

was halved

compared to the same time last year and

SunTrust

(STI) - Get Report

reported its third straight quarterly loss due to credit costs, although both beat bottom-line expectations. Those stocks gained 3.8% and 6.7%, respectively.

In other bank news,

Goldman Sachs

(GS) - Get Report

said Wednesday it

bought back

$1.1 billion worth of stock warrants it sold to the government as part of its participation in the Troubled Asset Relief Program. Goldman share rose 0.4% to $160.46.

Meanwhile, Bernanke began the second leg of his semiannual two-day economic report to Congress, this time facing questions from the Senate Banking Committee. Bernanke said in his prepared remarks that the Fed believes "a highly accommodative stance of monetary policy will be appropriate for an extended period" but made assurances that the policy measures could be withdrawn in "a smooth and timely manner as needed."

Wall Street will have its eye on data on initial jobless claims and existing-home sales early Thursday, looking for more clues to the pace of economic recovery. Those data are often market moving if they are better or worse than expected but for the most part there's just relief when they are out of the way, says ChannelCapitalResearch.com's Roberts. "It's one less land mine that could explode, and everybody breathes a sigh of relief. Of course this time it will be more overshadowed by earnings."

Crude oil futures lost 21 cents to $65.40 a barrel and gold rose $6.40 to $953.30 an ounce, while the dollar was slightly weaker vs. the yen, and slightly stronger against the pound and euro.

Stocks overseas were mixed. In Europe, London's FTSE 100 was rose 0.3%and the DAX in Frankfurt added 0.5%. In Asia, the Nikkei in Japan rose 0.7%, but the Hang Seng in Hong Kong fell 1.3%.

Longer-dated Treasuries were falling in price, rising in yield. The 10-year was down 18/32 to yield 3.35%, while the 30-year lost 1-4/32, yielding 4.46%.