By Damian J. Troise
Stocks closed broadly lower on Wall Street Thursday as JPMorgan Chase opened the latest round of corporate earnings for big banks with weak results and a warning about the economy.
Wall Street is also assessing the latest government reports showing that inflation remains hot and shows no signs of cooling, even as central banks try to loosen its grip on businesses and consumers by hiking interest rates.
The S&P 500 fell 11.40 points, or 0.3%, to 3,790.38. Nearly three out of every four stocks in the benchmark index finished in the red. The Dow Jones Industrial Average fell 142.62 points, or 0.5%, to 30,630.17. The Nasdaq rose 3.60 points, or less than 0.1%, to 11,251.19.
Banks had some of the biggest losses and weighed heavily on the market. JPMorgan Chase fell 3.5% after reporting a sharp drop in earnings for its latest quarter, falling short of forecasts. CEO Jamie Dimon stuck by his warning earlier this summer that a “hurricane” may be headed for the economy.
“I haven’t changed my view at all,” he said in a conference call with journalists. “The negatives I pointed out, the risks in the future, are still the same risks. They’re nearer than they were before.”
Inflation and the Federal Reserve's fight against it remain key concerns for Wall Street. Inflation at the wholesale level climbed 11.3% in June compared with a year earlier. It is the latest painful reminder that inflation is running hot, following a report on Wednesday that showed prices at the consumer level were 9.1% higher last month than a year earlier.
Pervasive inflation has been squeezing businesses and consumers for months. More importantly for Wall Street, it prompted an aggressive reversal for the Fed on its interest rate policy. The central bank is now raising rates in an effort to slow economic growth and cool inflation, but that has raised concerns that it could go too far and actually cause a recession.
Small-company stocks fell more than the broader market, in another signal that investors are worried about economic growth. The Russell 2000 fell 18.53 points, or 1.1%, to 1,707.51.
Several big technology companies rose and helped offset some of the losses elsewhere in the market. Apple rose 2%.
The yield on the 10-year Treasury, which affects mortgage rates, rose to 2.96% from 2.90% late Thursday. It remains lower than the two-year Treasury, which is at 3.12%. That's a relatively rare occurrence, and some investors see it as an ominous signal of a potential recession.
The Fed has already raised rates three times this year and traders are increasingly expecting a monster rate hike of a full percentage point at the central bank's next meeting in two weeks. Traders are betting on a 83% chance of a full-point hike, up from zero a month ago, according to CME Group.
Christopher Waller, a member of the Federal Reserve’s Board of Governors, said Thursday that he would be open to supporting such a move if upcoming economic data points to robust consumer spending.
“We went into this week feeling that the Fed would make a move significant enough to show it had more control" in fighting inflation, said Greg Bassuk, CEO at AXS Investments. “A meaty Fed rate hike alone does not rule out an opportunity for a soft landing, but the window is shrinking."
Investors have grown increasingly worried as retail sales and other data point to an economy already slowing. That could make it more difficult for the Fed to make a so-called “soft landing,” where it raises rates just enough cool inflation without causing a recession.
Concerns about the Fed's rate hikes have prompted Bank of America to forecast a mild recession hitting the economy in the second half of the year and more pain for traders. The benchmark S&P 500 index has already slumped into a bear market, down 20% from its most recent high in January, and likely hasn't hit bottom yet, according to the bank.
Investors are will get a clearer picture in the coming weeks about how badly inflation is hurting companies. Several more banks are on deck to report earnings Friday, including Citigroup and Wells Fargo, along with insurer UnitedHealth Group.
Updated on July 14, 2022, at 4:44 p.m. ET.