Stocks fall; banks slide on warning from JPMorgan

Stocks closed broadly lower Thursday on Wall Street as JPMorgan Chase opened the latest round of corporate earnings for big banks with weak results and a warning about the economy.

Wall Street is also assessing the latest government reports showing that inflation remains hot and with no signs of cooling, even as central banks try to loosen its grip on businesses and consumers by raising interest rates.

The Standard & Poor’s 500 index fell 11.40 points, or 0.3%, to 3,790.38. Nearly 3 in 4 stocks in the benchmark index finished in the red. The Dow Jones industrial average fell 142.62 points, or 0.5%, to 30,630.17. The Nasdaq composite rose 3.60 points, or less than 0.1%, to 11,251.19.

Banks had some of the biggest losses and weighed heavily on the market. JPMorgan Chase fell 3.5% after reporting a sharp drop in earnings for its latest quarter, falling short of forecasts. Chief Executive Jamie Dimon stuck by his warning earlier this summer that a “hurricane” may be headed for the economy.

“I haven’t changed my view at all,” he said in a conference call with journalists. “The negatives I pointed out, the risks in the future, are still the same risks. They’re nearer than they were before.”

Inflation and the Federal Reserve’s fight against it remain key concerns for Wall Street. Inflation at the wholesale level climbed 11.3% in June compared with a year earlier. It is the latest painful reminder that inflation is running hot, after a report Wednesday that showed prices at the consumer level were 9.1% higher last month than a year earlier.

Pervasive inflation has been squeezing businesses and consumers for months. More importantly for Wall Street, it prompted an aggressive reversal for the Fed on its interest rate policy. The central bank is now raising rates in an effort to slow economic growth and cool inflation, but that has raised concerns that it could go too far and cause a recession.

Small-company stocks fell more than the broader market in another signal that investors are worried about economic growth. The Russell 2000 fell 18.53 points, or 1.1%, to 1,707.51.

Several big technology companies rose and helped offset some of the losses elsewhere in the market. Apple rose 2%.

The yield on the 10-year Treasury, which affects mortgage rates, rose to 2.96% from 2.90% late Thursday. It remains lower than the two-year Treasury, which is at 3.12%. That’s a relatively rare occurrence, and some investors see it as an ominous signal of a potential recession.

The Fed has raised rates three times this year and traders are increasingly expecting a monster rate increase of a full percentage point at the central bank’s next meeting in two weeks. Traders see a 44% chance of a full-point hike, up from zero a month ago, according to CME Group.

Christopher Waller, a member of the Federal Reserve’s Board of Governors, said Thursday that he would be open to supporting such a move if upcoming economic data point to robust consumer spending.

“We went into this week feeling that the Fed would make a move significant enough to show it had more control” in fighting inflation, said Greg Bassuk, CEO at AXS Investments. “A meaty Fed rate hike alone does not rule out an opportunity for a soft landing, but the window is shrinking.”

Investors have grown increasingly worried as retail sales and other data point to an economy already slowing. That could make it more difficult for the Fed to make a so-called “soft landing,” in which it raises rates just enough to cool inflation without causing a recession.

Concerns about the Fed’s rate increases have prompted Bank of America to forecast a mild recession hitting the economy in the second half of the year and more pain for traders.