US equities: Wall Street falls due to disappointing banking income


US stock indices plunged Thursday after disappointing earnings from major US banks JPMorgan Chase & Co and Morgan Stanley underlined growing fears of a sharp economic downturn.

The benchmark S&P 500 was headed for its fifth consecutive loss session on fears that aggressive measures by the Federal Reserve to contain rising prices could push the world’s largest economy into recession.

JPMorgan fell 4.3% after it reported a more-than-expected 28% decline in quarterly earnings and postponed its share buyback as it set aside more money to cover potential losses.

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Jamie Dimon, CEO of the largest US bank, identified a number of concerns, including geopolitical tensions, high inflation and ‘unprecedented’ quantitative tightening as threats to global economic growth.

“The big concern is that the slowdown in the economy and higher inflation are really just the beginning of what investors are worried about,” said Sam Stovall, chief investment strategist at CFRA.

“We saw P/E ratios drop quite dramatically in the first half of this year. And now the question is, did the price drop anticipate a drop in earnings? I think that’s the reaction today.”

Morgan Stanley fell 2.4% after the bank missed earnings estimates for the first time in nine quarters as its investment banking unit struggled to cope with a slump in global dealmaking.

The broader S&P 500 index for banks fell 3.1% to its lowest level since December 2020.

All major S&P sectors were lower, with energy, materials and financials leading the way.

“We expect much of the coming reporting season to represent a revenue ‘confession’ period for CEOs as the outlook for analysts is likely to be noticeably lower,” wrote Scott Wren, senior global market strategist at Wells Fargo.

Last Friday, analysts saw total annual S&P earnings growth of 5.7% for the April-June period, down from the 6.8% forecast at the start of the quarter, according to Refinitiv.

At 9:53 a.m. ET, the Dow Jones Industrial Average fell 505.78 points or 1.64% at 30,267.01, the S&P 500 fell 59.65 points or 1.57% to 3,742.13 and the Nasdaq Composite fell 162 .18 points or 1.44%, at 11,085.40.

Fears of a recession have spooked investors this year as central banks around the world are aggressively raising borrowing costs to curb skyrocketing inflation, causing Wall Street to deliver its worst first-half performance in decades.

After a robust jobs report last week confirmed the case for a 75 basis point rate hike in July, investors were startled on Wednesday by high consumer price data prompting traders to bet on an ever-increasing rate hike of full percentage points later this month.

A Labor Department report on Thursday showed US producer prices rose more than expected in June amid rising costs for energy products, but underlying producer inflation appeared to have peaked.

Another report showed that the number of Americans filing new jobless claims rose for the second week in a row last week.

US-listed shares of Taiwan Semiconductor Manufacturing rose 1.0% after the contract chipmaker gave an optimistic revenue forecast.

Conagra Brands fell 6.9% after the food group forecast annual profits that were below estimates, with price increases dampening demand for frozen foods and snacks.

The number of declining issues outpaced the avant-garde with a 9.74-to-1 ratio on the NYSE and a 4.40-to-1 ratio on the Nasdaq.

The S&P index recorded one new high in 52 weeks and 42 new lows, while the Nasdaq made no new highs and 175 new lows.

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