US STOCKS-Wall St ends sharply lower on mixed earnings, sticky inflation, geopolitical fears

Economic data this week, particularly Wednesday's hotter-than-expected CPI report, has suggested that inflation could be stickier than previously thought, prompting investors to reset expectations about the timing and extent of the U.S. Federal Reserve's rate cuts this year. "It's a very real risk that we won't get any rate cuts this year," Dickson said, adding that while he does not expect a hike, the Fed would probably prefer to keep rates higher for longer.

U.S. stocks sold off on Friday after major U.S. banks' results failed to impress, capping a week marked by market-moving inflation data, evolving expectations for U.S. Federal Reserve policy, and looming geopolitical tensions. All three major indexes fell more than 1%, and registered losses on the week.

"When we look at what's happened in the macro space, inflation has taken a turn for the worse and that has put more pressure on companies to deliver this earnings season," said Mike Dickson, head of research at Horizon Investments in Charlotte, North Carolina. "Everyone's a bit jittery with intense focus on how good earnings need to be." Results from a trio of big banks marked the unofficial launch of first-quarter earnings season.

JPMorgan Chase & Co, the biggest U.S. bank by assets, posted a 6% profit increase but its net interest income forecast fell short of expectations. Its shares slid following the report. Wells Fargo & Co's stock fell modestly after profits dropped 7% as net interest income dropped on weak borrowing demand.

Citigroup posted a loss after spending on employee severance and deposit insurance. Economic data this week, particularly Wednesday's hotter-than-expected CPI report, has suggested that inflation could be stickier than previously thought, prompting investors to reset expectations about the timing and extent of the U.S. Federal Reserve's rate cuts this year.

"It's a very real risk that we won't get any rate cuts this year," Dickson said, adding that while he does not expect a hike, the Fed would probably prefer to keep rates higher for longer. "There's just no data point that you can actually look at right now that says the Fed should cut rates."

Boston Fed President Susan Collins said she expects a couple of rate cuts this year, even though it could take inflation some time to return to its targeted level. Austan Goolsbee, president of the Chicago Fed, said he remains focused on the Personal Consumption Expenditures (PCE) report due on April 26 for a clearer picture of inflation's progress toward the central bank's target.

Geopolitical tensions continue to simmer as Iran threatened to take revenge on Israel for the April 1 airstrike on its embassy in Damascus, adding momentum to the sell-off. "Geopolitical risks are difficult to nail down but they could keep energy prices elevated, which would not be helpful to for the CPI situation."

The CBOE Volatility Index, a measure of investor anxiety, hit its highest level since October 2023. According to preliminary data, the S&P 500 lost 75.46 points, or 1.45%, to end at 5,123.60 points, while the Nasdaq Composite lost 266.50 points, or 1.62%, to 16,175.09. The Dow Jones Industrial Average fell 478.29 points, or 1.24%, to 37,980.79.

Advanced Micro Devices and Intel fell after a report that Chinese officials told the country's largest telecom firm earlier this year to phase out foreign chips by 2027. U.S. Steel slid after shareholders voted to approve a proposed merger with Nippon Steel Corporation.

 

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