US stocks fell sharply Thursday as investors braced for the possibility of a full percentage point increase in the Federal Reserve’s benchmark interest rate later this month, while weak megabank earnings also weighed on sentiment.
The S&P 500 is on track to mark its fifth day in the red – the longest losing streak for the American benchmark in a month. If the Dow finishes the session at current levels, it would mark the blue-chip average’s biggest loss since June 28.
How stocks are trading
S&P 500 SPX
shed 63 points, or 1.7%, to 3,737.
Dow Jones Industrial Average DJIA
was down 549 points, or 1.8%, at 30,227, after retreating more than 600 points earlier.
Nasdaq Composite Comp
shed 175 points, or 1.6%, to 11,075.
On Wednesday, the Dow DJIA
fell 209 points, or 0.7%, while the S&P 500 SPX
decreased 0.5% and the Nasdaq Composite Comp
What’s driving markets
Federal Reserve rate hike worries continued to reverberate Thursday as traders priced in a 75% probability that Chairman Jay Powell and colleagues would raise the Fed’s benchmark interest rate by 100 basis points in less than two weeks time as they try to crush inflation, which jumped above 9% to a 41-year high in June, according to the consumer-price index released Wednesday.
Federal Reserve Governor Christopher Waller on Thursday said he supports a 0.75 percentage point interest rate hike in July, but he left the door open for a larger move if data over the next two weeks comes in strong.
Thursday’s economic data releases gave investors another look at inflation, as the producer price index climbed 1.1% in June, bringing the headline rate for the past 12 months to a new cycle high of 11.3%. This marks a new cycle high, and is close to the highest level on record for the gauge of wholesale prices, which are seen as a leading indicator for inflation as they are eventually passed down to consumers.
There was one silver lining, however: If food and gas and trade margins were omitted, so-called core producer prices rose just 0.3% in June. This caused the annualized rate to slow to 6.4% in June, down from 6.7% during the prior month.
Richard Saperstein, chief investment officer at Treasury Partners, said the latest inflation data underscored his fears that the Fed won’t be able to tackle inflation without driving the US economy into a recession, which could lead to more losses for stocks.
“We remain skeptical that the Fed can pull off simultaneously normalizing its balance sheet, controlling inflation, and avoiding severe market disruptions,” Saperstein said in an emailed commentary. “We’re increasingly concerned that investors may be forced to endure more downside volatility in this tricky environment.”
In addition, the second-quarter earnings season began in earnest on Thursday with disappointing reports from JPMorgan Chase JPM
and Morgan Stanley MS.
The weak numbers added to fears about slowing growth for corporate profits.
Analysts blamed JPM’s decision to suspend stock buybacks, along with the deepening inversion of the Treasury yield curve, for weighing on shares of American money-center banks.
“A lot of it came from Jamie Dimon and the fact that JP Morgan is walking away from stock buybacks and seemingly wants to horde cash. This is an indication that they’re preparing for a rough go in the economy, and that sentiment is spilling over to the other banks, along with the inverted yield curve, ”said Paul Nolte, portfolio manager at Kingsview Asset Management.
In other data, weekly jobless claims showed more Americans applying for benefits than at any time since November 2021.
Stocks in focus
Shares of the largest American banks traded sharply lower on Thursday following the earnings from Morgan Stanley and JPMwhose shares were down 2% and 4%, respectively. Goldman Sachs Group Inc.
shares were down 3.4%, Citigroup Inc.
was down 3.8%, Bank of America Corp.
was down 3.3% and Wells Fargo & Co.
was down 2.7%.
- Conagra Brands Inc. was the worst performer on the S&P 500 early Thursday, with its shares down more than 8%.
EOG Resources Inc.EOG
Diamondback Energy Inc.,
Marathon Oil Corp.
and Halliburton Company
lead a selloff in the energy sector driven by falling crude oil prices. WTI
Wall Street’s choppy session overnight left most Asian and European bourses displaying little risk appetite. The Stoxx 600 XX: SXXP
in Europe lost 1.8% and Hong Kong’s Hang Seng HK: HSI
fell 0.5%. The Nikkei 225 JP: NIK
in Japan bucked the trend and managed a 0.6% gain.
West Texas Intermediate crude futures WBS
were down 4.7% to 91.83, the lowest level since just after Russia launched its invasion of Ukraine in late February, as signs of slowing economic growth weighed on industrial commodities.
The spread between 2-year TU00
and 10-year Treasury yields TY00
inverted even further, reaching levels unseen in almost 22 years at minus 26 basis points.
After coming within a hair’s breadth of it earlier in the week, the US dollar EURUSD
finally reached parity with the euro, trading at 1.00 Thursday morning.
is up 1.6% to 19,978, recovering some ground after crypto lender Celsius filed for bankruptcy.