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Financial stocks lead Wall Street lower after disappointing JPMorgan update

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Shares on Wall Street fell on Friday, dragged lower by financial stocks, after a disappointing update from banking leader JPMorgan clouded an already mixed outlook for the U.S. economy.

The S&P 500 blue-chip stock index fell 0.4%, after falling 1.4% on Thursday.

The tech-heavy Nasdaq Composite edged down 0.1%, after falling 2.5% in the previous session.

JPMorgan said on Friday it would miss a major profit target this year. Its shares were down 5.5% in early afternoon New York trading. The S&P banking sub-index fell 2.2%, with American Express, Capital One Financial, Goldman Sachs and Morgan Stanley also under pressure.

Financial stocks have outperformed the broader market so far this year as investors clung to a narrative that the post-pandemic economic recovery would allow them to easily transition from winning bets in the lockdown-boosted tech sector to more cyclical companies. But the disruption caused by the coronavirus, soaring inflation and uncertainty over when price increases will peak have made economic trends difficult to predict, analysts said.

“The market was behaving as if we were at the beginning of an economic cycle,” said Geraldine Sundstrom, managing director and portfolio manager at Pimco.

“But then, the big acceleration of the reopening [from 2020’s coronavirus shutdowns] are behind us,” she added.

“So nerves are on edge and anything that will scare people has an over-the-top tendency to do so.”

Data on Friday also showed U.S. retail sales fell 1.9% in December, the biggest year-on-year decline in 10 months. An index of consumer sentiment from the University of Michigan plunged to nearly a decade, with survey respondents citing inflation as a bigger problem than unemployment. Consumer prices in the United States rose at an annual rate of 7% last month, the fastest rate of increase in nearly 40 years.

US corporate earnings season resumes next week, with more companies set to release their numbers for the last three months of 2021 and their outlook for the year ahead.

Investors said they expected to examine how factors such as rising wage pressure, price inflation and a tight labor market affected executives’ financial forecasts.

Companies listed on the blue chip S&P 500 index are expected to post year-over-year earnings growth of around 22%, according to analyst estimates compiled by data provider FactSet.

“If inflation goes up, the fear factor really kicks in,” said Aneeka Gupta, research director at ETF provider WisdomTree.

Fed officials, whose key funds rate affects borrowing costs and stock valuations around the world, signaled support for the first pandemic-era interest rate hike in March.

Swap markets priced in a gradual pace of increases, with the funds rate ending the year at 1% or less.

“The market is probably underestimating what the Fed will have to do,” said Lale Akoner, senior market strategist at BNY Mellon. “There are upside risks to interest rates and inflation.”

Elsewhere in the markets, the European Stoxx 600 stock index closed down 1%.

In government debt markets, the yield on the 10-year US Treasury note, which moves inversely to its price, added about 0.05 percentage point to 1.76%.

The dollar index, which measures the greenback against six other currencies, added about 0.4%.

Brent, the oil benchmark, rose 1.1% to $85.42 a barrel.

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