Stocks declined Friday as major banks reported results, part of a crucial earnings season that will shed light on how a slowing economy is affecting U.S. companies.
The S&P 500 and the Dow Jones Industrial Average retreated 0.8%, while the Nasdaq Composite fell 0.9%
Shares of Wall Street banks including
and
were lower Friday, after the lenders issued fourth-quarter results. While some banks beat expectations, the lenders also set aside more money to cover potential losses on loans, reigniting investor concerns about a recession.
JPMorgan, the U.S.’s biggest bank, said profit rose in the fourth quarter. At the same time, it warned it is now officially expecting a mild recession, and set aside $1.4 billion for potential loan losses. Shares fell 2.9% after the opening bell.
Financial stocks had been on a tear ahead of Friday’s results. The KBW Nasdaq Bank Index, which includes the largest banks, had risen 6% this year through Thursday, outpacing the S&P 500’s 3.7% gain.
Banks have thus far benefited from the Federal Reserve’s interest-rate increases, which allows them to earn more from lending, said
Kiran Ganesh,
a multi-asset strategist at
UBS.
At the same time, the U.S. economy is holding up better than many had expected despite last year’s surge in interest rates and inflation.
“It’s been a strong start to the year for bank stocks, supported by a combination of higher interest rates and the economic contraction being not as severe as expected,” he said. “That’s the Goldilocks scenario for banks.”
Elsewhere,
shares slid 4.6% after the electric-vehicle maker cut prices, and other auto stocks came under pressure.
shares fell 5.8%. The drop came even though the airline reported better-than-expected adjusted earnings for the fourth quarter, as travel demand continues to recover from the pandemic hit.
A Tokyo display showing foreign-exchange rates. The yen gained against the dollar Friday.
Photo:
franck robichon/Shutterstock
Investors continue to parse Thursday’s consumer-price index data, which showed inflation pressures eased in December for a sixth consecutive month. Softening inflation keeps the Fed on track to slow its pace of interest-rate increases. The central bank is widely expected to raise its benchmark rate by a quarter of a percentage point at its Feb. 1 meeting, down from a half-percentage point increase in December.
Bonds came under pressure after a recent rally driven by expectations for less aggressive policy-tightening from the Fed. The yield on the 10-year U.S. Treasury note rose to 3.480% from 3.446% on Thursday. Yields rise as prices fall
In currency markets, the WSJ Dollar Index, which measures the U.S. currency against a basket of peers, rose 0.1% after closing at its lowest level since June a day ago.
The Japanese yen was the strongest performer among major currencies. It added 0.7% against the dollar. Investors are betting the
will edge away from the ultra-loose monetary policy that has put it at odds with other central banks.
In commodity markets, oil prices edged up. Brent crude oil futures added 0.1% to $84.11 a barrel.
Overseas markets were broadly higher. The Stoxx Europe 600 rose 0.2%, and U.K.’s FTSE 100 added 0.9%. European markets have outperformed the U.S. lately as investors bet Europe will avoid a deep recession driven by higher energy costs in the aftermath of Russia’s invasion of Ukraine.
Data Friday showed the German economy escaped a contraction in the fourth quarter, while the U.K. economy unexpectedly grew in November.
“Now it seems like the winter should hopefully pass without any renewed major spike in gas prices or without gas running out,” said Mr. Ganesh of UBS. “Growth should be improving in Europe from here.”
In Asia, Hong Kong’s Hang Seng and the Shanghai Composite Index both rose 1%. Japan’s Nikkei 225 fell 1.2%.
Write to Chelsey Dulaney at chelsey.dulaney@wsj.com
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