Disappointing Bank Earnings, Recession Fears Weigh on US Stock Market

The major U.S. stock indexes are expected to open lower based on the premarket trade after several major banks reported mixed earnings results and with some predicting a recession in the world’s largest economy.

At 13:45 GMT, Dow futures are trading 34035.00, down 284.00 or -0.83%. S&P 500 Index futures are at 3964.75, down 38.75 or -0.97% and NASDAQ futures are trading 11405.00, down 129.25 or -1.12%.

JPMorgan Beats Profit Estimates, Sees Mild Recession

JPMorgan Chase & Co said on Friday it set aside $1.4 billion in anticipation of a mild recession, even as it reported a better-than-expected quarterly profit on the back of strong performance at its trading unit, Reuters reported.

Shares of the biggest U.S. bank fell about 3 percent in premarket trading as it kicked off quarterly earnings for corporate America that are expected to fall for the first time since the third quarter of 2020.

While Chief Executive Jamie Dimon said consumers were still spending excess cash and businesses remained healthy, he listed a number of uncertainties facing the economy.

“We still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation… and the unprecedented quantitative tightening.”

The bank flagged a modest deterioration in its macroeconomic outlook, “reflecting a mild recession in the central case”, Reuters reported.

Citigroup Profit Falls on Provision Hike, Dealmaking Slowdown

Citigroup Inc. reported a fall in fourth-quarter profit on Friday, as the bank hiked provisions to prepare for a worsening economy and investment banking revenue declined due to a sharp drop in dealmaking activity.

Shares of Citi slipped nearly 3% in premarket trading, after fears of a potential recession prompted Citi to add $640 million to its reserves in the fourth quarter.

That compares with a release of $1.37 billion from its reserves in 2021 when pandemic-related loans losses failed to materialize.

Citi’s investment banking revenue plunged 58% as merger and acquisition activity slowed dramatically last year, with companies shunning deals amid higher interest rates, the war in Ukraine and growing economic uncertainties, Reuter reported.

Wells Fargo Profit Falls 50% on Higher Reserves, Costs

Wells Fargo & Co on Friday reported a 50% decline in profit for the fourth quarter as the bank racked up more than $3 billion in costs related to a fake accounts scandal and boosted loan loss reserves for a potential economic slowdown, Reuters wrote.

The bank’s shares were down nearly 4% in premarket trade.

Bank of America Tops Estimates as Higher Rates Boost Interest Income

Bank of America Corp reported a bigger-than-expected fourth-quarter profit on Friday, helped by a surge in net interest income as the U.S. Federal Reserve raised rates through most of last year.

BofA’s shares were down nearly 3% in premarket trading.

Short-Term Outlook

Although rising interest rates have helped underpin the earnings at several banks, it has also hurt them somewhat with higher borrowing costs softening demand for mortgages and car loans, crimping banks’ revenue.

Clouding the outlook for big U.S. banks has been the Russia-Ukraine conflict and fading stimulus.

Some traders feel that the markets could be under pressure this earnings season with the banks setting the early tone in earnings season.