Stocks Plunge as Earnings Season Begins and Middle East Tensions Rise
NEW YORK — U.S. stocks took a sharp nosedive on Friday as the earnings reporting season got off to a mixed start. Concerns about escalating tensions in the Middle East also spooked investors, prompting them to seek safer havens for their money.
The S&P 500 was down 1.6% in afternoon trading, on track for its worst weekly loss since the market rally began in late October. The Dow Jones Industrial Average dropped 530 points, or 1.4%, with just over an hour left in trading, while the Nasdaq composite fell 1.8% from its previous day’s record high.
JPMorgan Chase saw a 5.7% decline, weighing heavily on the market despite reporting stronger-than-expected profits for the first quarter. However, the bank’s forecast for key income sources for the year fell short of Wall Street’s estimates, projecting only modest growth.
The pressure on companies to deliver robust profits is particularly intense now, as concerns mount that interest rates, a key driver of stock prices, may not provide much support in the near future.
Recent reports have shown that inflation and the overall economy are stronger than anticipated, leading traders to significantly lower their expectations for Federal Reserve interest rate cuts this year. Traders are now betting on just two rate cuts, down from initial forecasts of at least six at the beginning of the year.
Stock prices had surged to record highs in anticipation of rate cuts. Without the prospect of lower interest rates, companies will need to generate higher profits to justify their valuations, which some critics argue are already inflated by various metrics.
The spike in oil prices this year has added to concerns, as it could further fuel inflation. Oil prices rose on Friday amid ongoing tensions in the Middle East, with Brent crude reaching $90.45 per barrel.
Meanwhile, Treasury yields fell in the bond market, and the price of gold rose, signaling a flight to safety by investors.
The decline in consumer sentiment in the U.S. is another cause for worry, as consumer spending is a key driver of the economy. Rising inflation expectations among consumers could exacerbate price pressures, leading to a potential self-fulfilling prophecy.
Amid the uncertainty, corporate profits are under intense scrutiny. While the strong U.S. economy reduces the likelihood of rate cuts, it should support sales and earnings for businesses.
Analysts are closely watching earnings reports, with expectations for a third consecutive quarter of growth among S&P 500 companies. Big names like Bank of America, Johnson & Johnson, and UnitedHealth Group are set to report their earnings in the coming week.
Despite the current challenges, David Lefkowitz, head of U.S. equities at UBS Global Wealth Management, remains optimistic about the market’s potential. He forecasts that the S&P 500 could reach 5,200 by the end of the year, with a possibility of hitting 5,500 if inflation pressures ease or corporate profit growth exceeds expectations.
As the earnings season unfolds and geopolitical tensions persist, investors will be closely monitoring market developments for signs of stability and growth.
