Wall Street subdued as mixed bank earnings limit inflation data cheer

NEW YORK: Wall Street’s main indexes were subdued after giving up early gains on Friday, as a mixed bag of big bank earnings took the sheen away from a softer-than-expected inflation report that boosted hopes for an early start to interest-rate cuts.

Bank of America shed 2.4% after its fourth-quarter profit shrank as the lender took $3.7 billion in one-off charges, while Wells Fargo’s warning of a 7% to 9% drop in net interest income in 2024 sent the bank’s shares down 3.1%.

Citigroup dipped 1.4% after an $1.8 billion fourth-quarter loss. The lender also expects to further reduce its headcount.

JPMorgan Chase wiped off early gains and dipped 0.1% even after reporting its best ever annual profit and forecasting higher-than-expected interest income for 2024.

Aadil Zaman, partner at Wall Street Alliance Group, believes the banking sector has been a market underperformer, but with lower rates, loan growth and investment banking activity should improve in the long run.

The S&P 500 Banks index fell 1.5% on Friday.

The sector faced its worst turmoil in March 2023 since the 2008 financial crisis, but finished the year with a 7% gain on hopes that the Federal Reserve could commence interest rate cuts in 2024.

On Friday, data showed US producer prices unexpectedly fell in December amid a decline in cost of goods, while prices for services were unchanged, bringing some respite after Thursday’s hotter-than-expected consumer inflation print.

Following the latest data, traders’ expectations for a 25-basis-point rate cut in March rose to nearly 76% from 66.3%, as per the CME Group’s FedWatch Tool.

“2023 was the year when the Fed waged a war against inflation and won... and the economy is holding up well. But I do feel that given how quickly the market has gone up, we will get some pullback in the first quarter of the year,” Zaman added.

The blue-chip Dow dropped most among the major indexes, weighed down by a 4.1% decline in UnitedHealth after reporting higher-than-expected medical costs. The health insurer, however, posted an upbeat fourth-quarter profit.

At 11:45 a.m. ET, the Dow Jones Industrial Average was down 229.26 points, or 0.61%, at 37,481.76, the S&P 500 was down 8.52 points, or 0.18%, at 4,771.72, and the Nasdaq Composite was down 22.22 points, or 0.15%, at 14,947.96.

All the three major indexes are poised for weekly gains, with the S&P 500 on course for its best week since mid-December.

Delta Air Lines fell 8.0% after the carrier scaled down its annual profit outlook.

Tesla declined 3.3% after trimming prices of some new China models and plans to suspend most car production at its factory near Berlin.

Chevron, Exxon Mobil and Occidental Petroleum gained over 0.8% each, tracking a surge in crude prices.

Advancing issues outnumbered decliners by a 1.39-to-1 ratio on the NYSE and for a 1.03-to-1 ratio on the Nasdaq.

The S&P index recorded 36 new 52-week highs and no new lows, while the Nasdaq recorded 51 new highs and 43 new lows.