4:12pm: JPMorgan forecasts mild US recession this year
The Dow closed Thursday down 143 points, 0.5%, at 30,630, the Nasdaq Composite ticked up 3 points, less than 0.1%, to 11,251 and the S&P 500 dipped 11 points, 0.3%, to 3,790.
The major benchmarks all improved over the course of the day, with the Nasdaq able to eke out a positive session. That said, investors are grappling with underwhelming bank earnings. JPMorgan Chase & Co (NYSE:JPM) shares fell about 3.5% after the bank slashed its guidance for the year and canceled its share buybacks, along with projecting a mild US recession in the second half of the year.
That's bad news for markets, according to Sam Stovall, chief investment strategist at CFRA.
“If the banks are a barometer of the whole economy as well as what we’re likely to get from other earnings reports going forward, it’s going to be an ugly quarter,” Stovall said, as reported by CNBC.
12.05pm: Bank earnings a warning of what’s to come
US stock losses continued at noon with all three major indexes in the red amid re-surfacing recession fears following higher-than-expected inflation data and big banks’ earnings misses.
At midday, the Dow Jones Industrial Average had shed 314 points at 30,458 points, while the S&P 500 was down 35 points at 3,776 points and the Nasdaq Composite had dipped 88 points at 11,159 points.
In terms of major movers, electric vehicle (EV) maker Canoo Inc (NASDAQ:GOEV)’s shares soared more than 35% following the news the company has been awarded a contract by the US Army to supply an EV for analysis and demonstration.
Amazon.com Inc (NASDAQ:AMZN) was down about 1.3% despite news that Prime subscribers purchased 300 million items worldwide during its two-day Prime Day 2022 event, a significant boost from Prime Day 2021 where subscribers purchased 250 million items.
Disappointing earnings from JPMorgan Chase & Co (NYSE:JPM) and Morgan Stanley (NYSE:MS) saw these companies drop about 3.8% and 0.6% respectively at noon, dragging down other financial institutions such as Citigroup Inc (NYSE:C) (-3.7%), Bank of America Corporation (-2.5%), Wells Fargo & Company (NYSE:WFC) (-1.3%), and The Goldman Sachs Group Inc (-3%).
IG senior market analyst Joshua Mahony noted that today’s bank earnings had provided a warning of what was to come as JP Morgan CEO Jamie Dimon had brought home the reality of how earnings season was likely to play out.
“Underperformance from both the bottom-and-top line bank earnings does highlight risks that businesses are already suffering as we seemingly head towards a recession,” he said.
“If investors planned to focus on future outlook rather than past performance, they will now realize that Jamie Dimon represents the first of many CEOs with a very sombre and worrying message for the markets.”
Just yesterday, the market had priced in a 75 basis point rate hike in July by the Fed, but the above-consensus US CPI reading – with headline inflation at 9.1% in June – and a surprise 100 basis point rate hike by the Bank of Canada has changed the whole picture, analysts at ING noted.
“When it comes to the CPI impact, the acceleration was certainly above consensus, but markets were already bracing for a headline rate acceleration and price pressure is expected to ease in July due to gasoline price contraction,” analysts said.
“Our call is still for a 75 basis point hike this month. However, the risk is that the market itself pushes the Fed to hike by 100 basis points, as some FOMC members may oppose the idea of a dovish surprise.”
11.10am: Proactive North America headlines:
Burberry’s exposure to Chinese market drives down estimates
TRX Gold (TSX:TNX) delivers record quarterly production and net income from its Buckreef gold operation in Tanzania
Perk Labs closes at-the-market equity program after $3.2M in gross proceeds
Bridgeline Digital says Procon Products has selected its AI search platform Hawksearch to pump up revenue
CleanSpark expands bitcoin mining capacity by over 90 petahashes with recent machines acquisition
Western Magnesium achieves 99.62% magnesium metal purity during second pilot plant calibration run
Mandalay sees 2Q gold production of 19,395 ounces and 523 tons of antimony for a total of 23,305 ounces of gold equivalent
Belmont Resources identifies new copper-gold porphyry system at Come By Chance property in British Columbia
LithiumBank Resources commences trading on the OTCQX Best Market to increase visibility and accessibility to US investors
Golden Minerals releases 2Q production figures showing 3,158 gold equivalent ounces from Rodeo mine
Bradda Head Lithium all cashed up and ready to drill pegmatites and clays in the USA
Fobi AI (TSX-V:FOBI, OTCQB:FOBIF) launches digital loyalty and member card program for cannabis retailer Eggs Canna
Evergold pauses Golden Lion drilling program as cost and market conditions worsen
Red Pine Exploration hits high-grade gold in Minto Mine Shear Zone at its Wawa gold project in Ontario
EverGen buys 67% stake in Alberta-based RNG facility GrowTEC
Versus Systems enters definitive agreement for sale of 4.15M company shares
Sassy Resources (CSE:SASY, OTCQB:SSYRF) raises additional $404,750 to advance work on Westmore gold discovery
The Valens Company (TSX:VLNS, OTCQX:VLNCF) posts higher 2Q revenue as Green Roads and B2B sales record double digit growth
RecycLiCo Battery Materials announces encouraging results of life cycle assessment on lithium-ion battery recycling-upcycling process
9.35am: Selling continues
US stocks opened lower on Thursday after red hot inflation data released yesterday and disappointing earnings prompted a wave of selling.
Just after the open, the Dow Jones Industrial Average had shed 467 points or 1.6% at 30,306 points.
The S&P 500 had dipped 48 points or 1.4% at 3,754 points while the Nasdaq Composite was down 91 points or 1% at 11,156 points.
JPMorgan Chase & Co (NYSE:JPM) had fallen about 4.3% at the open after the bank released its 2Q report where it slashed its guidance for the year and cancelled its share buybacks because it now forecasts a mild US recession in the second half of the year.
After reporting an earnings and revenue miss, financial services provider Morgan Stanley (NYSE:MS) also opened lower, down about 1.5%.
Forex.com market analyst Fawad Razaqzada said that Wednesday’s hotter-than-expected CPI along with the fact that Europe was likely already in a recession had raised worries over an economic slowdown in the US.
“The US could follow suit [into a recession] with all these aggressive rate hikes and surging inflationary pressures weighing on consumer sentiment and spending,” he said.
He noted that the ongoing re-pricing higher in Fed rate expectations was likely to keep the dollar supported and may lead to another break below parity in the coming days, after the euro and US dollar hit parity for the first time in 20 years earlier this week.
“We are very close to reaching a low on the EUR/USD,” he said. “Whether parity breaks again or not, I think the downside risks are limited for the euro going forward.”
6:30am: More losses ahead
US stocks were expected to open lower as investors brace for the possibility of a 100-basis point interest rate hike in the world’s biggest economy after inflation hit a 41-year high in June, beating forecasts.
Runaway inflation and the Fed’s response to it by raising interest rates aggressively are stoking fears of a recession, keeping investors wary. Trading is expected to remain choppy as the earnings season continues to unfold.
Futures for the Dow Jones Industrial Average were trading 0.9% lower pre-market, while those for the broader S&P 500 index were down 1.0% and futures for the tech-laden Nasdaq-100 shed 0.8%.
“After the eye-popping US inflation reading, which blew past all expectations, everything is in play for the Fed, and this means even an interest rate hike of 100 basis points,” said Naeem Aslam, chief market analyst at avatrade.com. “Traders have been expecting for a while now that they will get to see a peak in the US inflation data, but it seems like there is still a bit more pain left.”
While the inflation data led to a slight shift in market expectations, Aslam feels that the Fed is likely to stick to 75 basis point hikes in the coming few meetings.
“We think that it is unlikely that the Fed will increase the interest rate by 100 basis points in any of the meetings as that would cause too much pain,” he added.
Up ahead, banking sector earnings will come into focus today as JPMorgan Chase & Co (NYSE:JPM) (JPMorgan Chase & Co (NYSE:JPM)) and Morgan Stanley (NYSE:MS) (Morgan Stanley (NYSE:MS)) report second quarter earnings. Results from Citigroup and Wells Fargo follow on Friday.
“It is widely anticipated that higher volatility in the market in the past quarter should have helped the banks to post more strong numbers in their trading unit,” said Aslam, adding that “fees in the investment banking section may have declined as there wasn't enough action because easy money has left the town.“
In energy markets, benchmark crude oil prices were under the $100 level, going some way to ease concerns over spiralling inflation. WTI crude oil futures were 2.3% lower at $94.05 a barrel, and the Brent crude futures were down 1.8 % at $97.78.
Contact the author at jon.hopkins@proactiveinvestors.com