Dow slumps 500 points as traders worry about larger rate hikes, JPMorgan falls after earnings

FAN Editor

Stocks tumbled Thursday as big bank earnings season commenced and traders assessed the possibility of even tighter U.S. monetary policy on the back of June’s hot inflation report.

The Dow Jones Industrial Average shed 558 points, or 1.82%, while the S&P 500 dropped 1.79%. The Nasdaq Composite tumbled 1.71%.

Earnings results from major banks on Thursday offered further clues into the health of the U.S. economy. JPMorgan Chase slipped more than 4% after reporting quarterly earnings that missed analyst expectations and halted buybacks. Morgan Stanley also dipped following a miss on the top and bottom lines. Goldman Sachs also slipped 3.7%.

All stocks in the Dow lost on the day, led by declines from JPMorgan, Goldman Sachs and Chevron. Energy, materials and financials led the losses in the S&P 500, down 2% each.

Thursday’s market moves come after the consumer price index for June came in hot at 9.1% and opened the door for a big Federal Reserve rate increase later this month, with the Fed funds futures market now pricing in a hike of as much as 1% — or 100 basis points. Core CPI, which excludes volatile prices of food and energy, was 5.9%, also ahead of a 5.7% estimate.

The CPI report also impacted treasuries, sending the 2-year Treasury yield up 9 basis points to about 3.138% while the yield on the 10-year Treasury fell about 4 basis points to 2.919%. That sent the inversion, which is a popular signal of a recession, to its widest since 2000 and persisted on Thursday.

In other news, the Beige Book, released Wednesday by the Fed showed worries of an upcoming recession amid high inflation.

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

June’s producer price index report, which measures prices paid to producers of goods and services, showed wholesale prices rise 11.3% last month as energy prices jumped and offered further insights into the health of the economy.

Earnings season continues on Friday with results from Wells Fargo and Citigroup.

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