Shares fell on Thursday as investors worked on possible higher-than-expected interest rate hikes from the Federal Reserve and some weak earnings reports from major banks.
By noon, the S & P 500 had fallen about 1.5%, and in addition to the recent series of losses, the index had fallen 2.5% in the week leading up to Wednesday.
Copper and oil prices have also fallen, reflecting concerns about the global economy. The European Commission on Thursday discontinued growth forecasts because of the effects of the war in Ukraine. Later Thursday, China will report a significant slowdown in second-quarter growth as parts of the country were blocked to curb the spread of the colonavirus.
Government bonds also continued to send a tough economic signal. Yields on US 10-year Treasuries rose to 2.99% on Thursday, but were still below yields on 2-year bonds. This is an anomalous event called the reverse yield curve, which is seen as a signal that bond traders are anticipating a recession.
US companies are beginning to report revenue for the three months to June. This is an opportunity to assess how investors are being hit by economic headwinds such as inflation and slowing growth.
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In that regard, after JP Morgan Chase reported a 28% drop in profits from a year ago, stocks at major banks fell sharply. Wall Street rival Morgan Stanley also said profits were down nearly a third from a year ago.
“We are addressing two conflicting factors operating on different timetables,” JPMorgan Chase CEO Jamie Dimon said in a news release Thursday. .. “The unprecedented quantitative tightening and its impact on global liquidity, how high interest rates must go, coupled with the war in Ukraine and the negative impact on global energy and food prices, is uncertain. Certainty will affect the global economy someday, which is very likely to have a negative impact. “
JP Morgan’s share fell by about 4%, while Morgan Stanley’s share fell by about 1.3%. The KBW Nasdaq Bank Index, an index of bank stocks, fell by more than 2%.
Thursday’s selling follows Wednesday’s downturn after the latest report on US consumer prices was released. The consumer price index shows that inflation was higher than expected in June, raising expectations from the federal government for even more significant interest rate hikes later this month.
Central banks argue that cooling inflation is a top priority for the economy, but investors are concerned that measures taken to curb inflation will drive the economy into recession. Analysts emphasize that investors need to know that inflation has peaked before the market recovers.
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Victoria Greene, Chief Investment Officer of G Squared Private Wealth, said:
In the futures market, traders are betting that central banks will raise interest rates As much as 1% in their July meeting. A week ago, there was no possibility of such a significant increase in fees at a single meeting.
On Thursday, Federal Reserve Board Christopher Waller said he supported raising the central bank’s policy rate in July by a quarter percentage point in line with the increase from June. Economic data guaranteed that.
