Wall Street retreated from records on Thursday, Oct. 12, as big banks started the earnings season on a bum note and a selloff in crude dragged the energy sector lower.
Benchmark indexes had flitted between gains and losses for much of the session before settling with modest declines. The Dow Jones Industrial Average was down 0.14%, while the S&P 500 declined 0.17% and the Nasdaq fell 0.18%.
Losses ruined indexes' chances of more records. Any gains would have put the the three major indexes at new all-time highs, the Dow for the third day in a row.
JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) marked the unofficial kickoff to the third-quarter earnings season. JPMorgan fell 0.88% on Thursday, failing to get a rise after its better-than-expected earnings. Profit 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 said in September that volatility in markets would increase trading revenue down the line.
Citigroup also beat earnings and revenue estimates in its third quarter, though it 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%. Bond trading fell 16%.
The stock declined 3.4%.
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 fell 1.4% to $50.60 a barrel on Thursday.
Energy stocks were among the worst performers on Thursday. Major oilers such as Exxon Mobil Corp. (XOM) , Chevron Corp. (CVX) , Schlumberger Ltd. (SLB) and Royal Dutch Shell PLC (RDS.A) were lower. The Energy Select Sector SPDR ETF (XLE) dipped 0.4%.
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 reported 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," Lewis Alexander, chief U.S. economist at Nomura, 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 even though inflation has been lackluster 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" if it moves too slowly, while raising rates amid lackluster growth might imply the Fed is being too aggressive, Bryce Doty, senior portfolio manager at Si Fixed Income Advisers, said 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.
Equifax Inc. (EFX) shares tumbled 1.5% 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" a 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.
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