Stocks in the U.S. Are Loosing Money Faster Then Anticipated As The Feds Rises Interest Rates to Cushion Recession.
U.S. 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 index 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
The S&P 500 SPX, -0.34% shed 20 points, or 0.5%, to trade at 3,781.
The Dow Jones Industrial Average DJIA, -0.53% was down 209 points, or 0.7%, to 30,563, after retreating more than 600 points earlier.
The Nasdaq Composite COMP, 0.01% dropped 20 points, or 0.2%, to trade at 11,226.
On Wednesday, the Dow fell 209 points, or 0.7%, while the S&P 500 declined 0.5% and the Nasdaq Composite dropped 0.2%.
What’s driving markets
Federal Reserve rate hike worries continued to reverberate Thursday as traders priced in a 42% 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.
The likelihood of a full percentage point rate rise dropped from 80% on Wednesday afternoon after Federal Reserve Governor Christopher Waller on Thursday said he still supports a 0.75 percentage point interest rate hike, but left the door open for a larger move if data over the next two weeks comes in strong. His comments come one day after Atlanta Fed President Raphael Bostic said “everything is in play.”
Markets await the University of Michigan’s preliminary release of July’s consumer sentiment and 5-year inflation expectations this Friday. Its June data said consumers expected inflation to rise at a 5.3% annualized rate.
“We wait for that and see whether or not that has climbed higher,” said Quincy Krosby, chief equity strategist at LPL Financial in a phone interview. “If it has, the Fed will probably bring 1% on the table for discussion, or what we’ll see is probably they’ll have to invoke 75 basis points longer than they thought.”
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 11.3%. That marked a 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 U.S. 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 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, -3.58% and Morgan Stanley MS, 0.01%. The weak numbers added to fears about slowing growth for corporate profits.
But it wasn’t just weaker-than-expected earnings-per-share that caused bank stocks to sink. 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 hoard 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.
Energy stocks were the worst performers among the S&P 500’s 11 sectors on Thursday, down 3.9%, followed by materials — down 2.7% — and financials, down 2.6%.
Stocks in focus
- Shares of the largest American banks traded sharply lower on Thursday following the earnings from Morgan Stanley and JPM, whose shares were down 1.1% and 4.1%, respectively. Goldman Sachs Group Inc. GS, -2.79% shares were down 3.3%, Citigroup Inc. C, -3.23% was down 3.7%, Bank of America Corp. BAC, -2.16% was down 2.9% and Wells Fargo & Co. WFC, -0.93% was down 1.4%.
- Conagra Brands Inc. CAG, -7.22% was the worst performer on the S&P 500 early Thursday, with its shares down 7.9%.
- APA Corp., APA, -4.13% EOG Resources Inc., EOG, -4.06% Diamondback Energy Inc., FANG, -3.57% Marathon Oil Corp. MRO, -2.22% and Halliburton Company HAL, -3.50% were all down sharply as shares of oil and gas stocks responded to falling oil prices.
- Wall Street’s choppy session overnight left most European and Asian bourses displaying little risk appetite. The STOXX 600 SXXP, -1.53% in Europe lost 1.5%. London’s FTSE 100 Index UK:UKX declined 1.6% . Hong Kong’s Hang Seng Index HSI, -0.22% fell 0.2%, while the Shanghai Composite Index SHCOMP, -0.08% declined 0.1%. The Nikkei 225 NIK, +0.62% in Japan bucked the trend and managed a 0.6% gain.
- West Texas Intermediate crude futures WBS.1, 0.48% were down 1.2% to $95.1, 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 TMUBMUSD02Y, 3.119% and 10-year Treasury yields TMUBMUSD10Y, 2.959% 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 euro EURUSD, -0.27% fell below parity with the U.S. dollar.
- Gold futures GC00, -1.53% GCQ22, -1.54% for August delivery fell $29.7, or 1.7%, to settle at $1,705.8 per ounce after touching a $1,695 low. That marked the lowest settle since March 30, 2021, FactSet data show.
- Copper futures HGU22, -2.62% HG00, -2.62% for September delivery lost 11 cents per pound, or 3.3% to $3.2115.
- Bitcoin BTCUSD, 5.22% was up 2.16% to $20,654, recovering some ground after crypto lender Celsius filed for bankruptcy.