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Dow falls 142 points as Wall Street weighs more aggressive Fed, disappointing bank earnings

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Stocks slipped Thursday as big bank earnings kicked off with disappointing results and traders assessed the opportunity of even tighter U.S. monetary policy from the Federal Reserve as recessionary fears lingered.

The Dow Jones Industrial Average shed 0.46%, or 142.62 points, to 30,630.17, while the S&P 500 dipped 0.3% to three,790.38. The Nasdaq Composite inched 0.03% higher to complete at 11,251.19.

Stocks closed in negative territory but well off their lows. At one point, the Dow plummeted as much as 628 points while the Nasdaq and S&P 500 fell greater than 2% each. Equities were on the right track to shut out the week in negative territory.

“If the banks are a barometer of the entire economy in addition to what we’re prone to get from other earnings reports going forward, it will be an unpleasant quarter,” said Sam Stovall, chief investment strategist at CFRA.

Earnings results from major banks on Thursday offered further clues into the health of the U.S. economy fears of a recession loom.

JPMorgan Chase shares sank 3.5% after the bank added to reserves for bad loans and halted its share buybacks, signaling a more cautious economic outlook. As profits dipped, CEO Jamie Dimon warned that the economy could take a success from surging inflation, geopolitical tensions and dwindling consumer confidence “sometime down the road.”

Continuing the trend, Morgan Stanley shares slipped about 0.4% on the back of a pointy decline in investment banking revenue, while Goldman Sachs, which is ready to report earnings Monday, fell nearly 3%. Earnings from big banks proceed on Friday with results from Wells Fargo and Citigroup, which dropped 0.8% and about 3%, respectively, during Thursday’s session.

The outcomes from bank stocks raised further concerns that earnings estimates have perhaps risen an excessive amount of in recent months. How much those numbers decline is determined by the state of the economy and the way hard a recession hits when and if it strikes, said Bob Doll, chief investment officer at Crossmark Global Investments.

“The market is finally concerned in regards to the indisputable fact that estimates, having gone up almost nonstop throughout the first half of this yr, are going to be under some pressure, and in fact today’s wrongdoer is JPMorgan,” he said. “How can corporate America, within the wake of a slowing economy and value pressures have the earnings which were expected by the consensus. Those numbers have to come back down.”

Declines from JPMorgan, Goldman Sachs and American Express led the Dow’s losses on Thursday, while energy, materials and financials were among the many S&P 500’s worst-performing sectors. Mosaic shares tumbled 5.7%, while energy corporations Halliburton, Diamondback Energy and EOG Resources fell greater than 3% each.

Big tech stocks were mixed on Thursday, with information technology up nearly 1%. Shares of Apple added 2%, and Nvidia gained greater than 1%. Meta Platforms and Salesforce slipped.

“We expect more equity downside is probably going, primarily because earnings expectations are too high,” wrote Citi’s Jamie Fahy.

Thursday’s market moves come after the patron price index for June got here in hot at 9.1% and opened the door for a giant Federal Reserve rate increase later this month, spurring speculation of a Fed rate hike of as much as 100 basis points.

Comments from Federal Reserve Governor Christopher Waller on Thursday alleviated a few of those fears as he said he’s prepared to think about an even bigger hike, however the market “is type of getting ahead of itself.”

“The takeaway for investors is that Fed policy stays data-dependent and the central bank will proceed on an aggressive tightening path until inflationary pressures peak decisively,” strategists at BCA Research wrote in a note. “Persistent price pressures call for an additional jumbo hike on the July 26-27 FOMC, but there continues to be room for the info to enhance before the September meeting, 8 weeks later.”

Volatile oil prices also dropped on Thursday, with West Texas Intermediate crude hitting its lowest level since February.

Meanwhile, June’s producer price index report, which measures prices paid to producers of products and services, showed wholesale prices rise 11.3% versus a yr ago last month as energy prices jumped and offered further insights into the pressure from inflation.

In other news, the inversion between the 2-year and 10-year rate on Thursday, which is a well-liked signal of a looming recession, hit its widest gap since 2000.

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