By Shreeshi Sanyal and Ankika Biswas
(Reuters) – U.S. stocks fell on Friday as earnings season kicked off with a drop in profits for major banks, while worsening inflation expectations led to fears that the Federal Reserve’s interest rate hike cycle could push the economy into recession.
JPMorgan Chase & Co. (NYSE:) , Morgan Stanley (NYSE :), City Group Inc (NYSE 🙂 and Wells Fargo (NYSE: & Co) reported a decline in net income as volatile markets hurt investment banking activity and allocated more funds to cover loan defaults.
However, JPMorgan beat market expectations for profit and, along with UnitedHealth Group Inc (NYSE:), which raised its annual profit forecast, capped declines in the Dow blue-chip index. Investment bank shares rose 2.4% and UnitedHealth 1.5%.
Analysts now expect third-quarter corporate earnings to rise just 3.6% from a year ago, well below the 11.1% increase forecast at the beginning of July, according to Refinitiv data.
“The earnings are going to be interesting because this is another opportunity to see how companies navigate through all the macro headwinds we’ve been dealing with,” said David Keeler, chief market strategist at StockCharts.com.
Market participants are closely watching earnings season for any impact on corporate earnings from price hikes and Fed rate hikes.
The University of Michigan’s preliminary reading for October of one-year inflation expectations rose to 5.1% from 4.7% in September, while five-year inflation expectations rose to 2.9% from 2.7% last month.
At 12:15 PM ET, it was down 320.10 points, or 1.07%, at 29718.62, and the S&P 500 was down 71.73 points, or 1.95%, at 3,598.18, and it was down 266.16 points, or 2.50%, at 10,382.99.
Meanwhile, the market saw a short-lived rebound due to the easing of tensions over the war in Ukraine after Russian President Vladimir Putin said the “partial mobilization” announced last month would be over in two weeks.
At the end of a week of high inflation readings that boosted bets in favor of a 75 basis point hike in the federal funds rate in November, the Nasdaq and S&P 500 were poised for weekly declines, while the Dow Jones tracked small gains.
Kroger (NYSE:) stock fell 4.97% after the supermarket chain said it would buy smaller rival Albertsons Companies Inc in a $24.6 billion deal.
Tesla (NASDAQ:) Inc fell 6.1% after media reports that the electric car maker has suspended plans to launch battery cell production at its plant outside Berlin due to technical problems.
Investors also tracked British policy after Prime Minister Liz Truss fired her finance minister Kwasi Quarting and scrapped parts of her economic package in a desperate bid to stay in power and survive market and political turmoil.
Declining issues outnumbered advanced stocks by 3.55 to 1 on the New York Stock Exchange and 2.68 to 1 on the Nasdaq.
The S&P recorded five new 52-week highs and five new lows, while the Nasdaq recorded 49 new highs and 118 new lows.
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