Fear on ‘War’ Street

Iran threat, Mideast turmoil and bank woes

The threat of a widening war in the Middle East coupled with disappointing earnings reports from US banks prompted a sell-off on Wall Street Friday.

The Dow Jones Industrial Average plunged 475 points, finishing at 37,983, and has now lost roughly 5% off its record high after flirting with the 40,000 barrier to close out March.

The S&P 500 sank 1.5% — more than 75 points — while the Nasdaq was down 267 points, or 1.6%.

Oil prices soared above $90 a barrel, on threats by Iran that it will launch an attack against Israel as early as this weekend.

Back home, JPMorgan Chase, the nation’s biggest bank by assets, reported quarterly profits of 6%, but shares dropped after its forecast for income from interest payments fell short of analysts’ expectations.

Citigroup, meanwhile, saw first-quarter profit drop 27% as the bank continues to restructure itself and slim down after selling off much of its international franchises post pandemic.

Wells Fargo’s profit fell 7% in the first quarter as it paid more to hold customer deposits while demand from borrowers declined.

JPMorgan CEO Jamie Dimon, in a call with analysts after the mixed earnings report, reiterated his concerns that inflation would continue to weigh on the US economy.

“Many economic indicators continue to be favorable. However, looking ahead, we remain alert to a number of significant uncertain forces,” Dimon said, citing the wars in Gaza and Ukraine as well as other geopolitical pressures, high amounts of government spending and “persistent inflationary pressures” as part of an “unsettling” global landscape.

The market sell-off is a result of a transition from “overoptimism” on the part of investors who expected interest-rate cuts to “over pessimism” that the Fed will keep interest rates where they are, according to Dr. Sung Won Sohn, a professor of finance and economics at Loyola Marymount University in Los Angeles.

According to Sohn, the market rally since October — which has seen the Dow climb by more than 12% — were based on expectations of interest-rate cuts.

Sticky inflation has tamped down expectations on Wall Street that the Federal Reserve will slash interest rates at least three times this year.