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Dow slumps 400 points as traders worry about larger rate hikes, JPMorgan earnings slide

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Stocks tumbled Thursday as big bank earnings kicked off with disappointing results and traders assessed the possibility of even tighter U.S. monetary policy on the back of June’s inflation data.

The Dow Jones Industrial Average shed 463 points, or 1.51%, while the S&P 500 dropped 1.38%. The Nasdaq Composite tumbled 1.15%.

“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 as recession fears mount. JPMorgan Chase shares sank 4.2% after the bank added to reserves for bad loans and halted its share buybacks, signaling a more cautious economic outlook.

Morgan Stanley shares dipped 1.3% on the back of a sharp decline in investment banking revenue, while Goldman Sachs, which is set to report earnings Monday, slipped 3.5%. Earnings from big banks continue on Friday with results from Wells Fargo and Citigroup.

All stocks in the Dow fell on the day, led by declines from JPMorgan, Goldman Sachs and Chevron. Energy, materials and financials led the S&P 500’s losses, down 2% each. Tech stocks Meta Platforms, Salesforce, Tesla and Amazon fell more than 1%.

Volatile oil prices also dropped on Thursday, with West Texas Intermediate crude hitting its lowest level since February.

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, with the fed funds futures market now pricing in a hike of as much as 100 basis points. The Beige Book, released Wednesday by the Fed, showed worries of an upcoming recession amid high inflation.

June’s CPI report also affected Treasurys and sent the inversion, which is a popular signal of a looming recession, to its widest since 2000 on Thursday.

“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.”

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 health of the economy.

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