Wall St Drops As Bank Earnings Disappoint, Producer Prices Surge

U.S. stock indexes fell on Thursday after JPMorgan Chase and Morgan Stanley kicked off quarterly earnings on a sour note, while a surge in producer prices fed into concerns about bigger rate increases by the Federal Reserve to tame inflation.

Investors have turned increasingly nervous that the Fed's efforts to tackle soaring prices with aggressive interest rate increases could tip the economy into a recession. Data on Wednesday showed U.S. consumer prices hit fresh 40-year highs in June, adding to bets of a big move on rates by the U.S. central bank later this month.

A Labor Department report on Thursday showed that U.S. producer prices increased more than expected in June amid rising costs for energy products. Still, underlying producer inflation appeared to have peaked.

"What we know right now is that inflation is still rising, so very, very high probability we're going to get a very sharp increase in interest rates in a couple of weeks," said Randy Frederick, managing director of trading and derivatives at Charles Schwab.

"Probability of a recession has been fairly high already. And I think this just simply increases that now."

In a gloomy start to the earnings season, JPMorgan chief executive Jamie Dimon struck a cautious note on the global economy as America's largest bank reported a worse-than-expected drop in quarterly profit and suspended share buybacks. Its shares fell 4.1%.

Morgan Stanley slipped 0.7% after it also missed profit estimates as its investment banking unit struggled to cope with a slump in global dealmaking.

The wider S&P 500 banks index tumbled 2.8% to its lowest level since December 2020.

While traders have completely priced in a 75 basis point rate hike this month, bets about an even bigger 100 basis point increase have risen in recent days.

The main indexes bounced off their session lows after Fed Governor Christopher Waller said he supports another 75-basis-point rate increase in July, but would lean toward a larger hike if incoming data shows demand is not slowing fast enough to bring inflation down.

At 12:24 p.m. ET, the Dow Jones Industrial Average was down 343.97 points, or 1.12%, at 30,428.82 and the S&P 500 was down 40.15 points, or 1.06%, at 3,761.63.

The Nasdaq Composite was down 98.13 points, or 0.87%, at 11,149.45.

All the major S&P sectors fell, with economically sensitive energy, materials and financials leading the declines.

U.S.-listed shares of Taiwan Semiconductor Manufacturing rose 1.3% after the contract-chipmaker gave an upbeat revenue forecast.

Conagra Brands fell 8.5% after the food group forecast annual earnings below estimates, with price hikes slowing demand for its frozen foods and snacks.

Declining issues outnumbered advancers for a 6.33-to-1 ratio on the NYSE and 3.22-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 44 new lows, while the Nasdaq recorded five new highs and 256 new lows.