Shares in the big banks fell following their earnings reports on Friday, weighing on US markets as Wall Street posted a second negative week earlier in the year.
The Dow Jones Industrial Average slipped 201.81 points, or 0.56%, to 35,911.81. The S&P 500 rose 0.08% to 4,662.85, while the tech-heavy Nasdaq Composite outperformed, up 0.59% to close at 14,893.75.
Bank stocks, which had outperformed in recent weeks amid rising interest rates, were broadly lower as their reports appeared unconvincing to investors despite strong headlines.
JPMorgan Chase, the US bank’s No. 1 by assets, reported earnings and revenues that beat estimates, but shares fell more than 6%. The company’s profits were supported by a large release of credit reserves, and CFO Jeremy Barnum warned that the company was likely to miss a key earnings target over the next two years.
Citigroup shares fell nearly 1.3% after the bank beat sales estimates, but posted a 26% drop in earnings. Morgan Stanley and Goldman Sachs, which report next week, also fell.
Meanwhile, Wells Fargo shares gained nearly 3.7% after the bank’s earnings beat expectations. CEO Charles Scharf said in a press release that credit demand picked up in the second half of the year.
“The only thing that really stands out is the cost growth. You saw that in both the Wells Fargo numbers and the JPMorgan numbers,” Gerard Cassidy, analyst for large-cap banks at RBC Capital Markets, told Squawk on the Street. Wells Fargo already had plans for future cost cuts, which could explain its outperformance on Friday, Cassidy said.
Netflix’s shares rose more than 1% after announcing a price hike for subscribers in the US and Canada, helping the Nasdaq to outperform on Friday.
Casino stocks were another bright spot on Friday after the Macau government announced it would only allow six casino licenses at the gaming hub. Las Vegas Sands was up 14.1%, while Wynn Resorts was up 8.6%. Oil stocks also outperformed as crude prices rose.
On the data front, retail sales fell 1.9% in December, worse than the 0.1% decline expected by economists polled by Dow Jones. Prelim January consumer sentiment from the University of Michigan came in lower than expected as Americans reported higher long-term inflation expectations.
Consumer discretionary stocks were under pressure after the report, with Bath & Body Works and Under Armor falling more than 2%. Peloton’s shares fell nearly 2.6% after the Nasdaq announced that the stock would be removed from the Nasdaq 100 index.
“The recent proliferation of the Omicron variant has likely weighed on sales, but other factors could also play a role. To support the idea that this wasn’t all a COVID story, consumers are likely to shift shopping from in-person to online as the virus spreads, but out-of-store sales plunged 8.7% in December.” said JPMorgan economist Daniel Silver in a note to clients.
It’s been a bumpy start to 2022 for investors. Tech stocks fell sharply in the first week of the year as the Fed signaled a more aggressive approach to inflation, accompanied by a rise in interest rates. Both moves partially reversed course earlier this week but had snapped back by Friday afternoon.
For the week, the Nasdaq lost 0.28%, while the Dow and S&P 500 lost 0.88% and 0.30%, respectively. This was the third negative week in a row for the Nasdaq.
“There is a thought that pricing in a more hawkish Fed is a process, not a week. While there was a lot done last week, this will be a process and I think we’re likely to have more volatile days in technology and growth stocks in general this quarter,” said Alicia Levine, Head of Equities, Capital Markets Advisory at BNY Mellon Wealth Management.
“The first quarter should be characterized by rising yields, rising interest rates and outperforming cyclicals, and we believe the long-term growth names will have a challenging quarter,” Levine added.
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Elsewhere, money management giant BlackRock posted gains that topped net income but slightly missed revenue. Shares fell about 2.2%.
In other data news, corporate inventories for November came in higher-than-expected but industrial production disappointed, falling 0.1% versus a 0.2% forecast rise.