Traders got another reality check Thursday, with JPMorgan Chase & Co. temporarily halting buybacks as earnings fell short of estimates, and Morgan Stanley announcing a plunge in investment-banking revenues.
JPMorgan Chase lagged estimates as the banking giant reported a 28 percent drop in quarterly earnings and set aside additional funds in case of bad loans. Executives stressed that US consumers remained relatively well off if there is a recession, but warned of economic headwinds that “are very likely” to dent growth.
Jamie Dimon, chief executive of the largest U.S. bank, flagged a number of concerns including geopolitical tension, high inflation and the “never-before-seen” quantitative tightening as threats to global economic growth.
Shares of JPMorgan fell 4.4 percent. Morgan Stanley dropped 2.6 percent.
The weak bank results underscore “that now we’re entering the process of the very real possibility of an earnings recession,” said Adam Sarhan of 50 Park Investments, referring to the possibility of two consecutive quarters of lower profits compared to the year-ago period.
Recession fears have roiled financial markets this year as central banks across the world move to aggressively raise borrowing costs to curb sky-high inflation, pushing Wall Street to its worst first-half performance in decades.
After a robust jobs report last week cemented the case for a 75-basis-point rate hike in July, investors were rattled by hotter-than-expected consumer prices data on Wednesday that pushed traders to bet on an ever bigger full percentage point interest rate hike later this month.