Wall Street mixed after inflation data

·3-min read

The S&P 500 has pared early losses to close modestly lower after investors digested disappointing quarterly results from two large US banks and hotter than expected inflation data.

Initially, all three major US stock indexes sold off sharply after second-quarter earnings from JPMorgan Chase & Co and Morgan Stanley.

Both reported slumping profits and warned of an impending economic slowdown.

Losses narrowed as the session wore on.

"There was an irrational response to the JPMorgan and Morgan Stanley results," said Jay Hatfield, chief executive and portfolio manager at InfraCap in New York.

"It wasn't a surprise that investment banking was weak."

"JPMorgan warned that there's uncertainty in the market but if you're alive and breathing you know there's uncertainty in the market."

JPMorgan CEO Jamie Dimon struck a cautious note on the global economy while Morgan Stanley's investment banking unit struggled to cope with a slump in global dealmaking.

Shares of JPMorgan Chase and Morgan Stanley both fell, as did the broader the S&P Banks index.

Slowdown worries were exacerbated as the Labor Department's Producer Price Index report echoed Wednesday's Consumer Price Index data, showing hotter than expected inflation in June.

The sell-off began to ease after Fed Governor Christopher Waller said he supported another 75 basis point interest rate increase in July, easing jitters over an even bigger, 100 basis point hike.

"The Fed is going to rise rates by 75 but they shouldn't," Hatfield said.

"The Fed has already done a lot to reduce inflation but they're not going to realise that until they see it in the rear view mirror."

"The thing to remember about the Fed is it's almost as if their third mandate is to be behind the curve," Hatfield added.

On Wednesday, the odds of a larger hike grew after the CPI report, considering the central bank's intention to aggressively tackle decades-high inflation - a prospect which increases chances of an economic contraction.

"There will be a recession but a mild one," Oliver Pursche, senior vice president at Wealthspire Advisors, in New York.

"The key component is continued strength in the labour market. Given where we are in the employment picture, that's not an immediate threat."

Core inflation, which strips out food and energy prices, continues to ease from the March peak, although it remains well above the central bank's average annual 2.0 per cent target.

The S&P 500 lost 11.63 points, or 0.31 per cent, to end at 3,790.15 points, while the Nasdaq Composite gained 0.99 points, or 0.01 per cent, to 11,248.57 and the Dow Jones Industrial Average fell 144.07 points, or 0.47 per cent, to 30,628.72.

Second-quarter earnings season is officially underway, with JPMorgan and Morgan Stanley starting it off on a dour note.

Analysts now expect aggregate S&P 500 second-quarter earnings growth of 5.1 per cent, significantly less than the 6.8 per cent annual growth estimate at the beginning of the quarter, according to Refinitiv.

US-listed shares of Taiwan Semiconductor Manufacturing rose following the chipmaker's upbeat revenue guidance.

Conagra Brands shares tumbled after it issued an annual earnings forecast below estimates.

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