©Portal. FILE PHOTO: Morning sun falls on the facade of the New York Stock Exchange (NYSE) building in Manhattan in New York City, New York, U.S. January 28, 2021. Portal/Mike Segar/
By Shreyashi Sanyal and Ankika Biswas
(Portal) – US stocks slumped on Friday as earnings season kicked off with earnings for big banks falling, while deteriorating inflation expectations fueled fears that the Federal Reserve’s aggressive cycle of interest rate hikes could plunge the economy into recession.
JPMorgan Chase & Co (NYSE:), Morgan Stanley (NYSE:), Citigroup Inc (NYSE:) and Wells Fargo (NYSE:) & Co reported a decline in net income as troubled markets impacted investment banking activity and more funds set aside cover loan defaults.
However, JPMorgan beat market expectations for earnings and, along with UnitedHealth Group Inc (NYSE:), which raised its annual earnings forecast, limited declines in the blue-chip Dow. The investment bank was up 2.4% and UnitedHealth was up 1.5%.
Analysts now expect companies’ third-quarter earnings to have risen just 3.6% year over year, much less than the 11.1% increase expected in early July, according to data from Refinitiv.
“Earnings will be interesting as this is another opportunity to see how companies are navigating through all of the macro headwinds we are dealing with,” said David Keller, chief market strategist at StockCharts.com.
Market participants are watching the earnings season closely for the potential impact on corporate earnings from higher prices and the Fed’s aggressive rate hikes.
The University of Michigan’s October preliminary reading for one-year inflation expectations rose to 5.1% from 4.7% in September, while the five-year inflation outlook rose to 2.9% from 2.7% last month.
At 12:15 p.m. ET, the S&P 500 was down 320.10 points, or 1.07%, to 29,718.62, the S&P 500 was down 71.73 points, or 1.95%, to 3,598.18, and the S&P 500 was down 266.16 points, or 2.50% to 10,382.99.
Meanwhile, the market enjoyed a short-lived rebound as tensions surrounding the war in Ukraine eased after Russian President Vladimir Putin said the “partial mobilization” announced last month would be completed within two weeks.
At the end of a week when high inflation reads confirmed bets in favor of a 75 basis point hike in Fed fund rates in November, the Nasdaq and S&P 500 were set for weekly declines while the Dow posted a small gain.
Kroger (NYSE:) Co fell 4.97% after the supermarket chain announced it would buy smaller rival Albertsons Companies Inc in a $24.6 billion deal.
Tesla (NASDAQ:) Inc slumped 6.1% after media reports reported that the electric vehicle maker has shelved plans to start battery cell production at its plant outside of Berlin due to technical problems.
Investors also followed British politics after British Prime Minister Liz Truss sacked her finance minister, Kwasi Kwarteng, and scrapped parts of her economic package in a desperate bid to remain in power and survive the market and political turmoil.
At a ratio of 3.55 to 1 on the NYSE and 2.68 to 1 on the Nasdaq, declining issues outweighed the rising ones.
The S&P index posted five new 52-week highs and five new lows, while the Nasdaq posted 49 new highs and 118 new lows.