Record levels for stocks were under threat on Thursday, Oct. 12, as declines in trading revenue pressured the big banks and a selloff in crude hurt the energy sector.
The Dow Jones Industrial Average was flat, the S&P 500 fell 0.02%, and the Nasdaq was up 0.06%. The Dow clinched a record close on Wednesday for the second day in a row. The S&P 500 and Nasdaq also scored all-time closing highs with just small gains. Any gains for the three would mark a new record close.
JPMorgan Chase & Co. (JPM - Get Report) was down 0.8% on Thursday, failing to get a rise after better-than-expected earnings. Earnings of $1.76 a share rose from $1.58 a share a year earlier and beat consensus of $1.65. Revenue increased 2.7% to $26.2 billion, exceeding estimates by $970 million.
Trading revenue saw a sharp 21% decrease to $4.53 billion as previously warned by the company. CEO Jamie Dimon forecast in September that volatility in markets would increase trading revenue down the line.
Citigroup Inc. (C - Get Report) also beat earnings and revenue estimates in its third quarter, though reported a decline in trading and corporate revenue. Earnings of $1.42 a share came in a dime over estimates. Revenue increased 2.3% to $18.17 billion, $270 million higher than expected.
Global consumer banking revenue increased 3% and institutional client group revenue rose 9%. However, corporate revenue sank 55%. Bond trading fell 16%.
The stock declined 2.4%.
Analysts anticipate another quarter of earnings growth. The third-quarter blended earnings growth estimate sits at 5.5%, while revenue growth is expected to come in at 4.3%, according to Thomson Reuters estimates.
Crude oil prices were lower even after a weekly reading on crude oil inventories showed a sharp decline. Crude stockpiles fell by 2.8 million barrels in the past week, a deeper drop than an expected decline of 2 million barrels. Gasoline stockpiles increased, while distillates fell.
Stockpiles have receded in the past few weeks as operational refineries continue to work through the buildup in stocks caused by Hurricane Harvey.
West Texas Intermediate crude was down 2% to $50.28 a barrel on Thursday.
Energy stocks were among the worst performers on Thursday. Major oilers such as Exxon Mobil Corp. (XOM - Get Report) , Chevron Corp. (CVX - Get Report) , Schlumberger Ltd. (SLB - Get Report) and Royal Dutch Shell PLC (RDS.A - Get Report) were lower. The Energy Select Sector SPDR ETF (XLE - Get Report) dipped 0.5%.
Health insurers were mixed on Thursday after President Donald Trump signed a new executive order designed to undermine the Affordable Care Act. The order loosens rules for health plans issued by employers and allows small businesses to band together to purchase health care plans across state lines that do not need to adhere to Obamacare rules. Without those requirements, employers could offer health plans which do not cover services such as mental health and maternity coverage.
Producer prices in September doubled from a month earlier, a promising sign inflation is beginning to rise toward the Federal Reserve's 2% target. The U.S. producer price index rose by 0.4% in September, matching analysts' estimates. The index had climbed by 0.2% in August. Core prices, excluding food and energy, gained 0.2%. Producer prices increased by 2.6% on a year-over-year basis, the highest level since 2012.
U.S. consumer prices for September, to be issued on Friday, Oct. 13, are anticipated to have risen 2.3% year over year, and 1.8% excluding food and energy, according to FactSet estimates.
"While the recent hurricanes pose a greater-than-usual uncertainty, we think that the landfall and aftermath of Hurricanes Harvey and Irma point to upside risks to core inflation," chief U.S. economist at Nomura Lewis Alexander wrote in a note. Nomura anticipates consumer prices in-line with FactSet estimates.
Questions over the inflation outlook and what it means for future rate hikes kept the Federal Reserve split at its September meeting, according to minutes released on Wednesday. Many members of the Federal Open Market Committee said another rate hike by year's end was likely to be warranted if the medium-term outlook remains unchanged, according to minutes from the September meeting. However, some said that decision should be based on incoming data on inflation.
Inflation trends remained a conundrum to most members. Participants "expressed concern that the low inflation readings this year might reflect not only transitory factors, but also the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted."
The chances of a December rate hike slipped to 86.7% in the afternoon session from 92% before the minutes, according to CME Group fed funds futures. Markets are currently pricing in a rate hike of 25 basis points that would put the federal funds rate at 1.25% to 1.5%.
The need to normalize monetary policy as the economy recovers and a concern over inflation trends has left the Fed mixed on how to proceed. Arguments on both sides have merit, according to analysts.
"Any rebound in inflation could put the Fed "behind the curve" and raising rates too slowly while lower inflation may imply the Fed is being too aggressive in raising rates," said Bryce Doty, senior portfolio manager at Si Fixed Income Advisers, in a note. "Understandably, the minutes suggest there is not a consensus amongst Fed members on when to best raise rates again."
Weekly jobless claims saw a sharp decline in the past week. The number of new claims for unemployment benefits declined by 15,000 to 243,000, according to the Labor Department. The less volatile four-week average fell by 9,500 to 257,500.
Juniper Networks Inc. (JNPR - Get Report) fell 6% after warning of lower profit and sales for its third quarter. The networking tech company anticipates third-quarter revenue between $1.25 billion and $1.26 billion, below previous targets of $1.29 billion to $1.35 billion. Analysts anticipates revenue of $1.32 billion. Adjusted earnings targets of 54 cents to 56 cents missed consensus of 58 cents. Juniper will report on its third quarter on Oct. 24.
Equifax Inc. (EFX - Get Report) shares tumbled 2% after the credit-reporting agency said it was investigating another possible data breach. "Our IT and security teams are looking into this matter, and out of an abundance of caution have temporarily taken this page offline," the company said in a statement. Last month, Equifax disclosed that a massive hack compromised highly sensitive information covering more than 145 million people.
Updated from 12:44 p.m. ET, Oct. 12.
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