On Wednesday, the three major stock indexes fell as investors weighed the latest earnings reports from large banks and economic data, while remaining wary of potential reactions to the volatile situation in Iran.
The technology-heavy Nasdaq Composite index fell about 1.4%, and the S&P 500 index dropped nearly 1%. Meanwhile, the Dow Jones Industrial Average fell about 0.6%, following Tuesday's pullback in financial stocks that dragged Wall Street indexes down from their record highs. Technology stocks led the decline, with large-cap stocks falling across the board. Despite the US officially approving Nvidia's chip exports to China, the company's stock price still fell due to reports of potential restrictions. Tesla and Broadcom also saw significant declines in their share prices.
Meanwhile, concerns about US action against Iran intensified as President Trump escalated military threats against the country in response to Iran's deadly crackdown on civilian protests. Iran warned of retaliation against any attack, and the US withdrew some personnel from military bases in the region, causing oil prices to climb to a two-month high. Against this backdrop, Bank of America and Wells Fargo released their quarterly earnings reports, both showing significant profit growth driven by trading activity. However, their share prices fell, dragging down Citigroup's stock as well, exacerbating the subdued sentiment at the start of earnings season, which had already been dampened by JPMorgan Chase's disappointing results.
On the macroeconomic front, investors closely analyzed weak wholesale inflation data, which, coupled with the moderate consumer inflation data released on Tuesday, further solidified market expectations that the Federal Reserve would keep interest rates unchanged in January. Meanwhile, November retail sales data, delayed due to pandemic-related lockdowns, showed a larger-than-expected increase.
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JPMorgan Chase led the earnings season for major banks this week, with its quarterly profit falling short of expectations due to a $2.2 billion net loss from its acquisition of Apple's credit card. Shares of the largest bank opened down about 2%. As the earnings season informally kicks off, Bank of America (BAC), Citigroup (C), and Morgan Stanley (MS) will also release their results in the coming days.
Markets are closely watching Tuesday morning's consumer inflation data, a key reference for the Federal Reserve's interest rate decisions. The CPI report showed that inflationary pressures remained stable last month, with overall annual inflation at 2.7% and monthly inflation at 0.3%, in line with expectations. The core consumer price index (CPI) rose 0.2% month-over-month and 2.6% year-over-year, below expectations and marking the lowest annual increase since the beginning of 2021. These figures are particularly important after the December jobs report showed a cooling labor market. Traders have confirmed that the Federal Reserve will keep interest rates unchanged this month, but according to the CME FedWatch tool, the likelihood of interest rate cuts in the coming months has increased slightly.
Meanwhile, central bank governors worldwide, including Janet Yellen and Alan Greenspan, have condemned the Justice Department's investigation into Powell, arguing that it threatens the Federal Reserve's independence. Powell, whose term as Federal Reserve Chairman expires in May, has described the investigation as political pressure from President Trump, who has repeatedly called for significant interest rate cuts.