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A Tale of Two Earnings Seasons

Financials and tech have turned in very different earnings so far, but there are still some values in both sectors.

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Second-quarter earnings have been a bit of a mixed bag so far. Some industries, like financial services, have been reporting consistently better-than-expected results, while tech companies are generally falling well-short. The divergence in fundamentals has led to a sizable difference in stock performance during the past week. Financials (as measured by  Financial Select Sector SPDR (XLF)) are up 1.87% while the technology sector (as measured by  Technology Select Sector SPDR (XLK)) is down 1.52% during the past five days. But these gyrations have not created much opportunity. In this fully valued market, investors need to stay focused on individual security selection and make sure they aren't overpaying.

The big banks all had quarterly results that easily exceeded analyst expectations. Morningstar's director of financial-services equity research Jim Sinegal observed that anything related to capital markets had a great quarter. Firms from  Goldman Sachs (GS) to  Morgan Stanley (MS) were able to report big trading gains as equity and other markets remained near high points. And with the increase in rates only affecting parts of the quarter, housing-related businesses at banks such as 
 Wells Fargo (WFC) still posted decent results. Sinegal also pointed out that one of the most remarkable feats in the quarter was how many of the institutions, notably  Bank of America (BAC), were able to keep pushing expenses lower. During the five years since the crisis caused the financial industry to make deep cuts, management teams are still committed to finding new places to cut costs. All of these factors combined to paint a pretty cheery picture for Wall Street.

Jeremy Glaser has a position in the following securities mentioned above: MSFT. Find out about Morningstar’s editorial policies.