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US Stock Market Reacts to Political Gridlock, Quarter Two Earnings Reports

As earnings reports for the second quarter of 2017 continue to roll in, the stock market remains strong despite “political gridlock,” disappointing quarterly statistics from a number of financial institutions, and uncertainty in the healthcare sector, Reuters’ Kimberly Chin reports.

The S&P financial sector is trending downward as shares of banks like JP Morgan, Wells Fargo, and Citigroup take hits following the release of disappointing earnings reports and underwhelming quarter 3 projections. Bank of America has fallen 1.3% on its own tepid earnings report since the market opened Monday.

Nonetheless, the S&P 500 rose 1.47 points (0.06%) Tuesday and set a record closing high of 6,344.31 due to a boom its technology sector.

The DOW was also burdened by sluggishness in the financial sphere. Goldman Sachs’ shares fell 2.3% after that bank announced a “40% [drop] in bond trading revenue” this quarter, according to Reuters’ Chin. The DOW fell 54.99 points (0.39%) Tuesday, closing at 21,574.73.

But the Nasdaq composite rose 29.87 points (0.47%) and closed at a record high of 6344.31, largely due to a 13.36% spike in Netflix stock in the wake of the company’s quarter two earnings reports, which it published Monday

Revenue and operating income were right on forecast,” the company said in a letter to shareholders regarding its second quarter. Perhaps more important to investors are the 5 million subscribers the iconic internet streaming company added.

“Wall Street typically either rewards or punishes Netflix stock based on the company’s quarterly subscriber movement…That was also the case Monday,” writes Tom Huddleston, Jr. of Fortune Magazine.

Netflix has reported subscriber growth in each of its last 14 earnings releases. Over the last three quarters, Netflix’s user base has grown by an average of over 5 million users per quarter. Still, the company’s quarter two growth in that category shattered analysts’ projections.

The failure of the Trump administration’s healthcare bill in the Senate caused the US dollar dropped to a 10-month low as investors begin to question the efficacy of the President, who has yet to pass any significant legislation.

“The healthcare bill not coming through raises some continued concerns about the ability of Washington to push through favorable fiscal policies,” said Lisa Kopp, head of traditional investments at U.S. Bank Wealth Management.

Naeem Aslam, chief market analyst at Think Markets UK, adds that the flatlining of healthcare legislation “means that the tax reforms or the so called infrastructure spending plan are in jeopardy.”

But, Art Hogan, chief market strategist at Wunderlich Securities in New York, does not expect political news to carry a great deal of sway in the market. at least in the short term. “Earnings and guidance will move the market more than news out of D.C.,” he said. “Goldman is more important to the market today, as is Netflix, and that will be the case for the next couple of weeks.”

Chin acknowledges that the stall of the healthcare bill had but a “muted effect” on the domestic market.

Market valuations have swelled following a first quarter in which “US companies posted the fasted rate of growth in earnings since 2011,” according to Chin. Still, considering the current political climate and the struggles of the financial sphere, positive corporate results will be necessary if investors are to maintain their confidence.

“With valuations where they are, it is really important for earnings to come through for the market to retain their momentum and push upwards,” said Kopp.

So far, so good: analysts estimate an 8.2% increase in the earnings of S&P 500 companies as compared to the second quarter of 2016.

Nonetheless, declining issues outnumbered advancing ones by a 1.10 to 1 ratio on the NYSE, and by a 1.24 to 1 ratio on Nasdaq, Chin says.

Corporate performance is carrying the market despite troubling political indicators. “Investors are looking for an investment that doesn’t need the economy to do a lot better, and [that] doesn’t need Washington,” said Matthew Peterson, chief wealth strategist for LPL Financial.

For now, such opportunities are available.

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