Stocks slipped Thursday as big bank earnings kicked off with disappointing results and traders assessed the possibility of even tighter U.S. monetary policy from the Federal Reserve as recessionary fears lingered.
The Dow Jones Industrial Average shed 0.46%, or 142.62 points, to 30,630.17, while the S&P 500 dipped 0.3% to 3,790.38. The Nasdaq Composite inched 0.03% higher to finish at 11,251.19.
Stocks closed in negative territory but well off their lows. At one point, the Dow plummeted as much as 628 points while the Nasdaq and S&P 500 fell more than 2% each. Equities were on track to close out the week in negative territory.
"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," said Sam Stovall, chief investment strategist at CFRA.
Earnings results from major banks on Thursday offered further clues into the health of the U.S. economy fears of a recession loom.
JPMorgan Chase shares sank 3.5% after the bank added to reserves for bad loans and halted its share buybacks, signaling a more cautious economic outlook. As profits dipped, CEO Jamie Dimon warned that the economy could take a hit from surging inflation, geopolitical tensions and dwindling consumer confidence "sometime down the road."
Continuing the trend, Morgan Stanley shares slipped about 0.4% on the back of a sharp decline in investment banking revenue, while Goldman Sachs, which is set to report earnings Monday, fell nearly 3%. Earnings from big banks continue on Friday with results from Wells Fargo and Citigroup, which dropped 0.8% and about 3%, respectively, during Thursday's session.
The results from banks raised further concerns that earnings estimates have perhaps risen too much in recent months. How much those numbers decline depends on the state of the economy and how hard a recession hits when and if it strikes, said Bob Doll, chief investment officer at Crossmark Global Investments.
"The market is finally concerned about the fact that estimates, having gone up almost nonstop during the first half of this year, are going to be under some pressure, and of course today's culprit is JPMorgan," he said. "How can corporate America, in the wake of a slowing economy and cost pressures have the earnings that have been expected by the consensus. Those numbers have to come down."
Declines from JPMorgan, Goldman Sachs and American Express led the Dow's losses on Thursday, while energy, materials and financials were among the S&P 500's worst-performing sectors. Mosaic shares tumbled 5.7%, while energy companies Halliburton, Diamondback Energy and EOG Resources fell more than 3% each.
Big tech stocks were mixed on Thursday, with information technology up nearly 1%. Shares of Apple added 2%, and Nvidia gained more than 1%. Meta Platforms and Salesforce slipped.
"We think more equity downside is likely, primarily because earnings expectations are too high," wrote Citi's Jamie Fahy.
Thursday's market moves come after the consumer price index for June came in hot at 9.1% and opened the door for a big Federal Reserve rate increase later this month, spurring speculation of a Fed rate hike of as much as 100 basis points.
Comments from Federal Reserve Governor Christopher Waller on Thursday alleviated some of those fears as he said he's prepared to consider a bigger hike, but the market "is kind of getting ahead of itself."
"The takeaway for investors is that Fed policy remains data-dependent and the central bank will continue on an aggressive tightening path until inflationary pressures peak decisively," strategists at BCA Research wrote in a note. "Persistent price pressures call for another jumbo hike at the July 26-27 FOMC, but there is still room for the data to improve before the September meeting, 8 weeks later."
Volatile oil prices also dropped on Thursday, with West Texas Intermediate crude hitting its lowest level since February.
Meanwhile, June's producer price index report, which measures prices paid to producers of goods and services, showed wholesale prices rise 11.3% versus a year ago last month as energy prices jumped and offered further insights into the pressure from inflation.