The threat of a widening war in the Middle East coupled with disappointing earnings reports from US banks prompted a selloff on Wall Street on Friday.
The Dow Jones Industrial Average plunged 475 points, finishing at 37,983, and has now lost roughly 5% off its record high after flirting with the 40,000 barrier to close out March.
The S&P 500 sank 1.5% – dropping more than 75 points, while the Nasdaq was down 267 points, or 1.6%.
Oil prices soared above $90 a barrel, on threats by Iran that it will launch an attack against Israel as early as this weekend.
Back home, JPMorgan Chase, the nation’s biggest bank by assets, reported quarterly profits of 6%, but shares dropped after its forecast for income from interest payments fell short of analysts’ expectations.
Citigroup, meanwhile, saw first-quarter profit drop 27% as the bank continues to restructure itself and slim down after selling off much of its international franchises post pandemic.
Wells Fargo’s profit fell 7% in the first quarter as it paid more to hold customer deposits while demand from borrowers declined.
JPMorgan CEO Jamie Dimon, in a call with analysts after the mixed earnings report, reiterated his concerns that inflation would continue to weigh on the US economy.
“Many economic indicators continue to be favorable. However, looking ahead, we remain alert to a number of significant uncertain forces,” Dimon said, citing the wars in Gaza and Ukraine as well as other geopolitical pressures, high amounts of government spending and “persistent inflationary pressures” as part of an “unsettling” global landscape.
The market selloff is a result of a transition from “overoptimism” on the part of investors who expected interest rate cuts to “over pessimism” that the Fed will keep interest rates where they are, according to Dr. Sung Won Sohn, a professor of finance and economics at Loyola Marymount University in Los Angeles.
According to Sohn, the market rally since October – which has seen the Dow climb by more than 12% – were based on expectations of interest rate cuts.
“The tailwind has disappeared and it’s become somewhat of a headwind,” Sohn told The Post.
He also cited the price of oil, which could soar to between $100 and $150 a barrel if Iran attacks Israel and triggers a regional conflict.
“The stock market was overvalued to begin with,” he said. “Now they are reversing and becoming concerned about the future.”
Earlier this week, the federal government released data showing that inflation in March rose 3.5% year-over-year – a reading that came in a higher than the 3.4% that economists anticipated.
Sticky inflation has tamped down expectations on Wall Street that the Federal Reserve will slash interest rates at least three times this year.
A new consensus is emerging among investors who now say that any rate cut would be implemented in September at the earliest.
Initial projections had the Fed cutting rates beginning in June.
With Post wires