Activity was muted on Wall Street on Thursday, as investors took a wait-and-see approach amid a flurry of earnings reports on banks and other market sectors.
A half-hearted afternoon rally helped the Standard & Poor's bank index reach 558.71, a 0.84% increase, while the S&P 500 broad market index jumped 0.68% to 913.7. The Dow Jones industrial average of 30 blue chip stocks rose 44.33 points, or 0.56%, to 7,886.76.
Investors got a pleasant surprise from J.P. Morgan & Co., which announced $1.85 per share earnings in the second quarter, beating the analysts' consensus by 10 cents.J.P. Morgan rose $1.81 to $108.18.
J.P. Morgan had previously warned investors that its fixed income earnings would fall short of the first quarter's. The news caused a drop in share price and downgrades by several analysts in June.
"They did beat expectations which is definitely a positive," said Katrina Blecher, bank analyst with Gruntal & Co. After Wells Fargo & Co.'s announcement on Wednesday that its earnings would come in at 30% less than expectations, she said, "it's a relief."
All in all, Morgan had a "good quarter," said Ms. Blecher. She noted that investment banking and equity investments were stronger than expected, but fixed income trading was weaker. She maintains a "hold" on the stock "because the volatility associated with its lines of business don't fit our criteria of a 'buy.' "
Ms. Blecher said the market "has no real direction at this point" as investors' attention is focused on earnings and credit quality. She recommends Banc One Corp., Bank of New York Co., and MBNA Corp.
Analysts at Bear, Stearns & Co. cut Wells Fargo to "neutral" from "buy." The stock, which dropped more than $18 on Wednesday, started the day down an additional $2.25, but staged a limited rebound to end trading up $6.625 to $267.25.
First Union Corp.'s 13% increase in second-quarter earnings didn't lift its stock price much. The stock closed at $96.375, up 6 cents.
Donaldson, Lufkin & Jenrette Securities Corp.'s Thomas K. Brown upgraded Provident Financial Group to "buy" from "market perform" as second-quarter earnings "beat both our expectations and the consensus," said Mr. Brown. The company reported earnings per share of 65 cents, versus analyst expectations of 62 cents. Mr. Brown's target price: $57 in one year. The stock rose $1.50 on Thursday, closing at $48.
Merrill Lynch & Co.'s Judah Kraushaar reiterated his "accumulate" rating on Citicorp. "We've been positive all along on Citicorp." He said the bank's high multiple emerging markets franchises will keep growing in terms of relative earnings, giving it less than average exposure to the U.S. credit cycle. Its growing desire to further rationalize technology and processing systems should reduce operating expenses.
Goldman, Sachs & Co. initiated coverage of Washington Mutual Inc., the Seattle thrift, adding the stock to its "recommended" list. "They have very high earnings visibility for the next two or three years, and are a strongly managed company, well position to take advantage of consolidation." said analyst David Hodes. The stock rose 65 cents.
In the major economic indicator of the day, the Labor Department said initial claims for state unemployment rose 40,000 in the week ending July 5, to a seasonally adjusted level of 377,000, but the figures were skewed by seasonal layoffs at auto manufacturers.