What Held Stocks Back Tuesday, What Wall Street's Saying

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Stocks were mixed and risk sentiment was clearly negative in the financial market Tuesday. Headwinds beyond JPMorgan's  (JPM) - Get Report better-than-expected reported quarter are holding back stocks.

The S&P 500 fell 0.63%, even with large cap tech stocks essentially flat, with the Nasdaq falling just 0.1% after it had been up a tick earlier in the day. The 10-Year Treasury yield fell to 0.73% from 0.78%.

Investors have been favoring defensive stocks like consumer staples and utilities this week, as well as large cap, profitable growth tech stocks, which can grow through periods of economic turbulence. FAANG stocks rose a few tenths of a percentage point, although Apple  (AAPL) - Get Report fell 2.6% to $121 share. The sock rose 6% Monday in anticipation of its iPhone 12 unveiling Tuesday, which featured a 5G-enabled phone.

Cyclicals like restaurants, airlines and oil were down, some more than 1%.

Positively, JPMorgan posted revenue of $29 billion, narrowly beating estimates. Earnings per share was $2.92, rising 9% year-over-year and beating estimates of $2.23. Loan loss provisions fell more than 90% quarter-over-quarter, as consumer and business credit brightened during the quarter. JPM’s top line beat was largely on the back of growth in trading and investment banking. The stock fell 1.66% to $100.74 a share, although banks more sensitive to the yield curve, like Wells Fargo WFC fell more than 2%.

But a combination of the lack of fiscal stimulus for closed small businesses and Johnson and Johnson’s  (JNJ) - Get Report pausing of its coronavirus vaccine trials is casting doubt over the continued rapidity of the economic recovery. That factor is outweighing factors like a backwards-looking quarterly earnings report from a major global lender.

Here’s what Wall Street’s saying:

Jamie Dimon, Chairman, CEO, JPMorgan Chase on Earnings Call:

“I think the policy, obviously the Fed’s doing what it can to keep markets open, but the policy on the final side, is there some kind of continuation of unemployment insurance and PPP. Those are the two most vulnerable areas, so just maximize the chance that we’ll have better outcomes."

Ken Berman, Strategist, Gorilla Trades:

“All eyes were on the numbers of two banking giants, Citigroup (C, -3.9%) and JP Morgan (JPM, -1.3%). Both firms beat expectations on their top and bottom lines, but their shares turned sharply lower in early trading due to the negative COIVD headlines and the drop in European equities. On the other hand, JP Morgan’s surprisingly upbeat outlook for the corporate credit market is a reassuring sign concerning the domestic economy.”

Tony Dwyer, Chief Market Strategist, Canaccord Genuity:

"Third quarter earnings season kicks into gear today with several of the large money center banks reporting quarterly earnings. Q3/20 EPS are expected to be down 20.7%, driven by the economically sensitive sectors (Figure 1), but are likely going to be “less bad” than the Q2/20 drop of 30.6% and should represent the beginning of the COVID-19 pandemic recovery. We believe this EPS recovery continues to be driven by historic excess liquidity coupled with further signs of a synchronized global recovery in the updated OECD data."

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