Stormy weather lashed Wall Street on Friday as stocks took a nosedive, befuddling investors hoping for clear skies after major banks posted sparkling quarterly results. Raging inflation fears and burgeoning geopolitical risks overwhelmed any earnings glow, sending the Dow Jones Industrial Average into a 385-point tailspin.
As the opening bell reverberated across a tense floor of the New York Stock Exchange, the slate of underwhelming bank commentary on the economic outlook opened the floodgates. The blue-chip Dow index was swamped by a 1% drop, while the mighty S&P 500 and tech-heavy Nasdaq were dragged down 1.2% and 1.4% respectively through the murky depths.
“Make no mistake, inflation is proving an obstinate foe unwilling to wave the white flag,” thundered Bob Doll, CEO and Chief Investment Officer at Crossmark Global Investments. “Its stubbornness likely translates into fewer interest rate cuts from the Fed’s fire hoses this year – undoubtedly a suboptimal scenario for current equity valuations.”
The disappointing start to the holiday-shortened week only compounded previous wounds, leaving major indexes bleeding red. Over the four-day trading span, the S&P 500 has given up 1.3%, while the Dow has hemorrhaged over 2%. Not even the tech-embracing Nasdaq could stanch losses, slipping 0.2% into the dusky depths.
Leading the rout was none other than JPMorgan Chase, the mighty financial titan whose shares plunged over 5% despite record profits. The bank’s CEO Jamie Dimon ominously warned that inflationary gales continue to batter the economic ship, stoking fears that key lending revenues may fall short of ambitious forecasts this year.
Citigroup stock took a 2% haircut despite clearing revenue hurdles, while Wells Fargo eked out a modest 0.1% decline in the scarring aftermath of its report. The tepid investor reaction serves as a stark reminder that bottom lines take a back seat when stormclouds amass on the economic horizon.
And amassing they were on Friday, with a potential geopolitical typhoon brewing in the Middle East. Reports of Israel girding for retaliatory Iranian strikes this weekend in the wake of last October’s Israel-Hamas conflict fanned the inflationary flames. Oil prices surged over 3% to crest $87 per barrel as the specter of fresh regional unrest loomed.
The rising energy costs only compounded worries about entrenched inflationary forces pounding the American economic shoreline. A new University of Michigan consumer survey captured the fraught mood, with long-run inflation expectations spiking and overall sentiment missing forecasters’ targets.
“We’ve lost the salutary effects of anticipated aggressive Fed interest rate cuts that were giving markets a sustained upward draft just weeks ago,” lamented Brad Conger, Chief Investment Officer at Hirtle, Callaghan & Co. “While not providing much uplift currently, corporate earnings remain a vital buoyancy source steering ships through these unsettled waters.”
As the deluge of first-quarter profit reports intensifies next week, investment firm UBS anticipates S&P 500 earnings growth will hold steady in the 7-9% range – mirroring the prior period’s trajectory. However, the analysts foresee ballast being added beyond the handful of tech titans that drove gains recently.
While crosswinds of earnings, inflation, rates and geopolitics threaten to batter markets near-term, firms like UBS remain hopeful that strong corporate performance, potential Fed easing later in 2024, and accelerating AI tailwinds can ultimately help restabilize the wayward bull.
For today at least, investors opted to batten down the hatches amid the swirling maelstrom of uncertainty. Friday’s rout underscores that the path higher for equities may stay stubbornly choppy, even with sturdier economic underpinnings. Smooth sailing remains an elusive dream in these volatile markets.
