S&P 500 dips as bank stocks drop on recession fears

Wells Fargo's Mike Mayo says our base case is the bank is up 50% this year

Stocks were set to end the week on a bad note on Friday, with JPMorgan leading the decline in bank stocks after warning a recession was the base case for the year.

All major stock indexes were off session lows. The broader S&P 500 fell 0.2 percent and the Nasdaq Composite fell 0.1 percent, on track to snap a five-day winning streak. The Dow Jones Industrial Average traded flat.

Stocks are still headed for a winning week, with the Nasdaq on track for its best week since November. The Nasdaq is up about 3.5% for the week. The S&P rose 1.8%, while the Dow gained 1.5%.

JPMorgan posted revenue that topped expectations, but the bank warned it would set aside more funds to cover credit losses as a “moderate recession” was its “core case”. The bank posted $2.3 billion in provisions for credit losses during the quarter, a 49% increase from the third quarter.

The slight decline came despite Bank of America reporting better-than-expected fourth-quarter earnings. The firm echoed JPMorgan’s concerns about the economy. The company’s chief executive, Brian Moynihan, said on a conference call with investors that it was preparing for a mild recession in 2023, including a scenario in which unemployment rose rapidly.

Shares also fell after Wells Fargo reported its profit halved in the previous quarter.

Investors have been awaiting those results for a deeper look at the health of the economy.

Ross Mayfield, an analyst at Baird Investment Strategist, said bank earnings weighed on stocks at the start of the day, but sentiment reversed later in the morning after investors appeared to shrug off negative news, which To some extent it was to be expected.

“People aren’t really expecting a blockbuster quarter in financials,” he said. “It just provides a little bit of sentiment swings, and as banks lead earnings season, they can set the tone for how investors view the broader outlook.” .”

“Frankly, the market has bounced back really well over the last few weeks without a catalyst, so there might just be a little bit of profit-taking after the earnings season,” he added.

Elsewhere, Delta Air Lines reported earnings and revenue that topped estimates for the final quarter of 2022. However, the stock fell about 4%.

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