Some of Wall Street’s biggest banks kicked off earnings season on Thursday.
Ed Jones/AFP via Getty Images
The stock market ended mixed Thursday after dismal earnings from JPMorgan Chase increased concerns about the economy. The indexes cut their losses after a Federal Reserve governor calmed the market down a bit.
The Dow Jones Industrial Average fell 143 points, or 0.5%, while the S&P 500 declined 0.3%, and the Nasdaq Composite ended essentially flat. The indexes were all deeply in the red in the morning. Though most stocks rebounded throughout the day, the indexes’ rebound was led by tech shares. Tech earnings are often somewhat less damaged by macroeconomic challenges.
The stock market was already set for a bad day when JPMorgan earnings hit. Both the bank’s earnings and revenue fell short of forecasts, and management set aside $1.1 billion in provisions for potential credit losses. The big surprise, though, was a decision to suspend share repurchases. Together, the news signals that the bank is preparing for a weakening economy.
“High inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity …are very likely to have negative consequences on the global economy,” said Jamie Dimon, chairman and CEO of JPMorgan. “We are prepared for whatever happens.”
Shares fell 3.5%.
That isn’t the only problem that looks to have sent the S&P 500 down for a fifth straight day, as inflation runs even hotter. The producer price index rose 11.3% year over year for June. That jump means companies have an incentive to raise prices, contributing to consumer inflation—and more interest-rate hikes, or at least bigger ones, by the Federal Reserve.
Wall Street is expecting the Fed to act even more aggressively in lifting interest rates to combat higher prices than it did in June, which brought a three-quarter-point increase. A full percentage-point rate increase is now on the table instead of another three-quarter-point increase.
Fed governor Christopher Waller said if economic data come in stronger-than-expected, he would support a rate hike of 1%.
The good news, which may have helped the stock indexes rise from their intraday lows, is that Waller did say that markets had gotten ahead of themselves in pricing in a 1% rate hike. Now, the fed funds futures market is pricing in a slightly lower probability of such a rate hike. The CME Fed Watch puts the chances of a full percentage point hike at 42%, down from 80% on Wednesday. Overall, rate hikes are meant to help tame inflation by denting demand.
“The higher they raise rates, the more the recession outlook increases,” wrote NatAlliance Securities’ Andrew Brenner.
Also, earnings season will continue with Citigroup
(C) and BlackRock
(BLK) following on Friday, and investors are worried that analysts will have to start cutting their estimates for future earnings, something they have been reluctant to do.
“Consensus estimates are strong, and we consider them over-optimistic given the deteriorating macroeconomic backdrop,” says Richard Saperstein, chief investment officer of Treasury Partners.
The inflation jump suggests margins will come under pressure, too. With producer prices running hot, companies will try to raise prices, but consumer prices have been rising at a slower pace, suggesting that corporations might not be succeeding.
“Many businesses’ margins will also shrink in the current environment,” wrote Paul Gray, managing director of Ironhold Capital.
And that is just one more thing for investors to worry about.
Here are stocks on the move:
Conagra Brands (CAG) stock dropped 7% after the company reported a profit of 65 cents a share, beating estimates of 63 cents a share. Sales came in at $2.91 billion, missing expectations for $2.93 billion.
Taiwan Semiconductor Manufacturing Co. (TSM) gained 2.9% after the chip maker raised its revenue forecast for the year and beat second-quarter earnings estimates following strong demand from auto makers and consumer goods companies. TSMC posted net income for the June quarter of $1.55 a share, above the $1.44 expected by analysts. The news also buoyed shares in chip maker Infineon
(IFX. Germany), which rose 1% in Frankfurt trading.
Tesla (TSLA) rose 0.5%. Andrej Karpathy, director of artificial intelligence and the head of the electric-vehicle maker’s autopilot vision team, said Wednesday that he was leaving the company.
Martin Marietta Materials (MLM) stock fell 2% after getting upgraded to Outperform from Peer Perform at Wolfe Research.
Costco Wholesale (COST) stock gained 4%. Deutsche Bank upgraded the shares to Buy from Hold.
Write to Jack Denton at jack.denton@dowjones.com
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