Wall Street Skids As Bank Earnings Disappoint

U.S. stock indexes tumbled on Thursday after weaker-than-expected earnings from big U.S. banks JPMorgan Chase & Co and Morgan Stanley underscored growing fears of a sharp economic downturn.

The benchmark S&P 500 was heading for its fifth consecutive session of losses amid fears that aggressive measures by the Federal Reserve to control soaring prices could push the world's largest economy into a recession.

JPMorgan fell 4.3% after it reported a bigger-than-expected 28% fall in quarterly profit and suspended share buybacks as it set aside more money to cover potential losses.

Jamie Dimon, CEO of the largest U.S. bank, flagged a number of concerns including geopolitical tension, high inflation and the "never-before-seen" quantitative tightening as threats to global economic growth.

"The big concern is that the slowdown of the economy and higher inflation are really just the beginning of what investors have been worrying about," said Sam Stovall, chief investment strategist at CFRA.

"We saw the P/E ratios come down pretty dramatically in the first half of this year. And now the question is, did the price decline anticipate an earnings decline? That is what I think is the reaction today."

Morgan Stanley dropped 2.4% after the bank missed profit estimates for the first time in nine quarters as its investment banking unit struggled to cope with a slump in global dealmaking.

The wider S&P 500 banks index tumbled 3.1% to its lowest level since December 2020.

All the major S&P sectors were lower, with energy, materials and financials leading the losses.

"We expect much of the upcoming reporting season to represent an earnings 'confession' period for chief executive officers as guidance to analysts will likely be adjusted noticeably to the downside," Wells Fargo's senior global market strategist Scott Wren wrote in a note.

As of last Friday, analysts saw aggregate annual S&P earnings growth of 5.7% for the April-to-June period, down from the 6.8% forecast at the beginning of the quarter, according to Refinitiv.

At 09:53 a.m. ET, the Dow Jones Industrial Average was down 505.78 points, or 1.64%, at 30,267.01, the S&P 500 was down 59.65 points, or 1.57%, at 3,742.13, and the Nasdaq Composite was down 162.18 points, or 1.44%, at 11,085.40.

Recession fears have jolted investors this year as central banks across the world move to aggressively raise borrowing costs to curb sky-high inflation, pushing Wall Street to its worst first-half performance in decades.

After a robust jobs report last week cemented the case for a 75-basis-point rate hike in July, investors were rattled by hot consumer prices data on Wednesday that pushed traders to bet on an ever bigger full percentage point rate hike later this month.

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

Another report showed the number of Americans filing new claims for unemployment benefits rose for a second straight week last week.

U.S.-listed shares of Taiwan Semiconductor Manufacturing rose 1.0% after the contract-chipmaker gave an upbeat revenue forecast.

Conagra Brands fell 6.9% 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 9.74-to-1 ratio on the NYSE and a 4.40-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 42 new lows, while the Nasdaq recorded no new highs and 175 new lows.