Stocks slump over bank earning reports
Stocks fell Thursday as investors grappled with the possibility of another higher-than-expected interest rate increase by the Federal Reserve and some downbeat earnings reports from major banks.
Trading was turbulent, and the S&P 500 ended the day down just 0.3 percent, after earlier falling nearly 2 percent. Thursday’s losses added to a series of declines that have left the index down 2.8 percent this week.
Companies in the United States are starting to report their earnings for the three months through June, a chance for investors to assess how hard businesses are being hit by economic headwinds including inflation and slowing growth.
On that front, shares of big banks were sharply lower after JPMorgan Chase reported a 28 percent decline in profit from a year ago. Its Wall Street rival Morgan Stanley also said its profit fell by nearly one-third from a year ago.
“We are dealing with two conflicting factors, operating on different timetables,” JPMorgan Chase CEO Jamie Dimon said in a news release Thursday. “The uncertainty about how high rates have to go and the neverbefore-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine, and its harmful effect on global energy and food prices, are very likely to have negative consequences on the global economy sometime down the road.”
JPMorgan’s stock fell about 3.5 percent, while Morgan Stanley slipped about 0.4 percent. An index of bank stocks, the KBW Nasdaq Bank Index, fell 2 percent.
Thursday’s selling followed a slump Wednesday after the release of the latest report on consumer prices in the United States. The consumer price index showed inflation in June was faster than anticipated, raising expectations for an even larger interest rate increase from the Fed later this month.
Central bankers have asserted that cooling inflation is their top economic priority, but investors are concerned that the measures taken to tame inflation will push the economy into a recession. Analysts have emphasized that investors need to know that inflation has peaked before the markets can recover.
“There is nothing standing between the Fed and being more aggressive,” said Victoria Greene, chief investment officer at G Squared Private Wealth.
On Thursday, Christopher Waller, a Federal Reserve governor, said he supported increasing the central bank’s policy interest rate in July by three-quarters of 1 percentage point, matching an increase from June, although he suggested that an even larger move could be justified if economic data warrants it.