While you were sleeping: US recovery not complete

Shares of JPMorgan Chase and Goldman Sachs advanced after the banks reported better-than-expected earnings, though Wall Street overall was struggling to extend its rally.

Spoiling the party was US Federal Reserve policy makers' concern about valuations of some social media and biotechnology companies.

"Valuation metrics in some sectors do appear substantially stretched-particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year," the Fed said in a policy report on Tuesday.

In late afternoon trading in New York, the Dow Jones Industrial Average inched 0.04 percent higher. The Standard & Poor's 500 index slipped 0.07 percent, while the Nasdaq Composite Index fell 0.38 percent.

In the Dow, gains in shares of JPMorgan Chase and AT&T, up 4 percent and 1.2 percent respectively, offset declines in shares of Johnson & Johnson and IBM, down 2 percent and 0.7 percent respectively. Shares of Goldman Sachs were up 1.1 percent.

Earlier in the day, the Dow set an intraday record of 17,120.34.

In semi-annual testimony to the Senate Banking Committee, Fed Chair Janet Yellen warned that the recovery of the US economy was "not yet complete" and that "significant slack" remained in the country's labour market.

"Although the economy continues to improve, the recovery is not yet complete," Yellen said. "Even with the recent declines, the unemployment rate remains above Federal Open Market Committee participants' estimates of its longer-run normal level."

"A high degree of monetary policy accommodation remains appropriate," Yellen said.

Meanwhile, investors bought into the outlook for JPMorgan Chase.

"Toward the end of the second quarter, we saw encouraging signs across our businesses including an uptick in wholesale utilisation, strengthening pipelines in our commercial and business banking segments, and some improvements in markets activity," JPMorgan Chase CEO Jamie Dimon said in a statement.

"While it is too early to assume that this momentum will continue, we have confidence in the long-term growth of the economy" Dimon also said.

Indeed, the latest clues on the US economy were solid.

Retail sales gained a smaller-than-expected 0.2 percent in June from a revised 0.5 percent increase in May, while the New York Fed's Empire manufacturing gauge climbed to a better-than-expected 25.6 in July, separate reports showed.

"This is not a fragile economy," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York, told Reuters. "The consumer continues to play their part in moving the economy forward."

In Europe, the Stoxx 600 Index shed 0.4 percent from the previous close. The UK's FTSE 100 Index fell 0.5 percent, Germany's DAX declined 0.7 percent, while France's CAC 40 gave up 1 percent.

Germany offered another sign of concern about the euro-zone's biggest economy. The ZEW Center for European Economic Research's index of investor and analyst expectations fell more than expected to 27.1 in July, down from 29.8 in June.

Next up is Wednesday's China growth statistics.

(BusinessDesk)