US stocks extended losses on Thursday as investors digested earnings and recession talk at big Wall Street banks while reeling from shock inflation data that raised the possibility of a rate hike of 100 basis points later this month.
The S&P 500 and Dow Jones Industrial Average recovered from session lows of nearly 2%, but each closed down 0.3% and 0.5%, respectively. The tech-heavy Nasdaq entered positive territory to end the session just above breakeven.
JPMorgan Chase ( JPM ) was in the spotlight Thursday after it reported a wider-than-expected 28% drop in second-quarter profit, attributing the drop to a $1.1 billion provision for credit losses amid concerns about a possible economic downturn. Shares closed up 3.5%.
“In our global economy, we face two conflicting factors, operating on different clocks,” said CEO Jamie Dimon. “The US economy continues to grow and both the labor market and consumer spending, and their ability to spend, remain healthy.”
JPMorgan Chase CEO Jamie Dimon speaks at the NABTU (North America’s Building Trades Unions) 2019 Legislative Conference in Washington, U.S., April 9, 2019. REUTERS/Jeenah Moon
“But geopolitical tension, high inflation, declining consumer confidence, uncertainty about how high rates will fare and unprecedented quantitative easing and their effects on global liquidity, combined with war in Ukraine and its damaging effect on global energy. and it is very likely that food prices will have negative consequences on the world economy at some point,” Dimon added.
Morgan Stanley ( MS ) disclosed results that missed analysts’ expectations, dragged down mainly by a drop in investment banking revenue due to volatile market conditions. Shares capped the session 0.3% lower after paring a 2% loss.
Those results also weighed on the broader financial sector, sending shares of fellow banks Citi ( C ) and Wells Fargo ( WFC ) down more than 3% and 0.9%, respectively, ahead of their own win on friday
The moves in equity markets come after all three major indexes fell on Wednesday following new CPI data that showed prices in the U.S. economy rose at the fastest pace since 1981.
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“Markets reacted sharply after the surprising inflation numbers and the headline number of 9.1% only makes the Fed’s job that much harder,” said Charlie Ripley, senior investment strategist from Allianz Investment Management. “As a result, the Fed is likely to send a hawkish message at the July meeting, and it would be a mistake to think that a rate hike of less than 75 basis points is on the cards.”
The blowout headline figure even sparked a wave of speculation among strategists that a 100 basis point hike could now be on the table, a move that would mark the most combative monetary intervention since the early 1990s.
Christopher Waller, a member of the Federal Reserve Board of Governors, on Thursday maintained his support for a 0.75% rate hike at the next meeting of policymakers later this month, but said he would be willing to support a full percentage point increase if the next economic publications point to strong consumer spending.
The remarks echo sentiment shared by Atlanta Fed President Raphael Bostic after Wednesday’s CPI data.
“Everything is on the line,” Bostic told reporters in St. Petersburg, Florida. Asked if that included raising interest rates by a full percentage point, he said: “It would mean everything.
The exterior of the Marriner S. Eccles Federal Reserve Board building is seen in Washington, DC, U.S., June 14, 2022. REUTERS/Sarah Silbiger
On the economic front, initial jobless claims rose last week in a possible sign that the labor market may be cooling as the Federal Reserve tightens financial conditions.
First-time claims for unemployment insurance in the US rose to 244,000 in the week ended July 9, up 9,000 from the previous period. The Labor Department data was released Thursday morning. Economists polled by Bloomberg had expected the latest figure to reach 235,000.
The producer price index for final demand — a gauge of wholesale and business prices — rose 11.3% year-on-year in June and 1.1% from the previous month, the Labor Department also reported Thursday, underscoring inflationary pressures in the wholesale
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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