NEW YORK (AP) — U.S. stocks are plummeting Friday after a mixed start to earnings season. Concerns about escalating tensions in the Middle East also spooked financial markets, prompting investors to look for safer places to put their money.
The S&P 500 was down 1.6% in afternoon trading, heading for its worst weekly decline since Wall Street’s massive rally began in late October. With just over an hour left in trading, the Dow Jones Industrial Average was down 530 points, or 1.4%, and the Nasdaq Composite Index was down 1.8% from its previous record.
JPMorgan Chase & Co. fell 5.7%, becoming one of the market’s biggest weights even after the company said its first three months of the year profit beat analysts’ expectations. The nation’s largest banks said their main source of revenue will grow only slowly this year, below Wall Street expectations.
Companies are under constant pressure to generate greater profits. But it’s especially acute now given concerns that interest rates, another key determinant of stock prices, won’t move much higher in the near term.
A series of reports since the start of this year have shown that both inflation and the overall economy remain in worse shape than expected. That has forced traders to sharply lower their expectations for how many times the U.S. Federal Reserve may cut its key interest rates this year. Traders are primarily betting on just two stocks, with at least six stocks underperforming expectations at the start of the year, according to CME Group data.
Stock prices had already risen to record levels, partly due to expectations for such rate cuts. Without interest rate relief, companies would need to generate higher profits to justify their stock prices, which critics say are already too high by a variety of measures.
This year’s rise in oil prices is adding to concerns as it could further increase inflationary pressures. It rose again on Friday amid continued tensions in the Middle East. Israel has said it could attack Iran if Iran launches an attack from its territory, following the bombing of the Iranian consulate in Syria that killed Iranian generals.
Brent crude, the international standard crude, rose 0.8% to $90.45. The price briefly exceeded $92 the previous day, but has returned to almost the same level as October.
At the same time, bond markets saw yields on U.S. Treasuries fall and the price of gold rise, a phenomenon that often occurs when investors flock to investments deemed safer.
The yield on 10-year government bonds fell from 4.58% to 4.50%. Record-setting gold rose nearly $2,450 an ounce before deducting the gains.
Preliminary reports suggesting that US consumer sentiment is weakening also added to the tension. This is an important update because spending by U.S. consumers is the main driver of the economy.
Perhaps more worrying is that U.S. consumers are becoming more pessimistic about inflation. The outlook for inflation over the next 12 months is the highest since December. Such expectations could fuel a self-fulfilling prophecy that purchases intended to anticipate price increases will fuel further inflation.
That’s why companies’ profits are under scrutiny. The downside of a significantly resilient U.S. economy is that it reduces the chance of rate cuts, but the upside is that it should support corporate sales and profits.
David Lefkowitz, head of U.S. equities at UBS Global Wealth Management, said this has spread profit growth to more types of companies than just the Big Tech giants that dominated the market last year. .
As such, he expects the S&P 500 index could end the year near the 5,200 level, near Thursday’s close. He said the index could even rise to 5,500 if inflationary pressures ease sooner or corporate profit growth is stronger than expected.
On Wall Street, Wells Fargo fell 0.7%, swinging between gains and losses. The bank beat analysts’ latest quarterly profit targets in its first report since the Biden administration eased some restrictions on banks following a series of scandals. However, net interest income, a key component of bank profits, was lower than expected.
Citigroup also fell 2.1% despite reporting better-than-expected results, while State Street rose 0.6%.
Banks are heading into an earnings season in which analysts expect S&P 500 companies to grow for the third straight quarter, according to FactSet.
This week will feature reports from major companies such as Bank of America, Johnson & Johnson, and UnitedHealth Group.
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AP writers Matt Ott and Zimo Zhong contributed.
Stan Cho, Associated Press
