US bank stocks buckled on Friday, even after several reported fatter profits than analysts expected, and the sharp declines overshadowed gains elsewhere in the market to drag the S&P 500 lower.
JPMorgan Chase & Co and several other financial titans marked the unofficial start of the earnings reporting season, and expectations were high for them, as they are for most major companies.
Wall Street is forecasting the strongest growth in seven years for S&P 500 companies, and the hope has been that healthy profit reports in coming weeks will steady the market following a rough couple of months.
However, high expectations can be as much a burden as cause for optimism.
JPMorgan Chase reported its biggest-ever profit and topped analysts’ expectations, but investors were already anticipating the good news that it delivered, such as healthier trading revenue, and took note of things like an increase in charge-offs for credit cards.
JPMorgan Chase shares fell 2.7 percent to US$110.30 to lop off most of the big gains made earlier in the week.
The S&P 500 on Friday fell 7.69 points, or 0.3 percent, to 2,656.30. The loss pared the index’s gain for the week to 2 percent from 2,604.47 on April 6.
The Dow Jones Industrial Average on Friday dropped 122.91, or 0.5 percent, to 24,360.14, but rose 1.8 percent from a close of 23,932.76 a week earlier.
The NASDAQ Composite on Friday lost 33.60, or 0.5 percent, to close at 7,106.65, rising 2.8 percent from 6,915.11 on April 6.
As a group, financial stocks in the S&P 500 fell 1.6 percent, more than double the loss for any of the other 10 sectors that make up the index.
PNC Financial Services Group Inc had one of the biggest losses in the S&P 500 after reporting first-quarter results that fell short of some analysts’ expectations. It dropped 4.1 percent to US$145.46.
Wells Fargo & Co fell 3.4 percent to US$50.89 and Citigroup Inc dropped 1.6 percent to US$71.01, even though both reported profits that beat expectations.
The possibility of a significant settlement with federal regulators hung over Wells Fargo’s results.
After weeks where fears about a possible US-China trade war dominated the market, many analysts along Wall Street were expecting strong profit reports to divert investors’ attention.
Over the long term, stock prices tend to track the progress of corporate profits.
Expectations for profit growth this year might have climbed so high, particularly following Washington’s recent overhaul of the tax code, that they might be setting the stage for future disappointment, James Investment Research Inc portfolio manager Matthew Watson said.
“In the near term, it looks like companies are beating expectations in general,” Watson said. “Our concern comes over the next 12 months.”
Outside financial stocks, other areas of the US market were stronger.
Energy stocks in the S&P 500 jumped 1.1 percent after the price of oil continued its strong climb.
Alaska Air Group Inc jumped to the biggest gain in the S&P 500 after it gave an updated forecast for first-quarter revenue trends that was better than what it had previously given. Shares rose 6.1 percent to US$63.95.
Airline stocks have been strong after Delta Air Lines Inc reported stronger-than-expected earnings on Thursday. Delta rose a total of 2.8 percent from Thursday to Friday.
Broadcom Corp had one of the biggest gains in the S&P 500 after it said it would repurchase up to US$12 billion of its stock. The technology company rose 3.1 percent to US$246.94.
Additional reporting by staff writer
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