S&P 500 slumps as Fed rate hike fears overshadow earnings-led rally in banks

By Yasin Ebrahim

Investing.com -- The S&P 500 slumped Friday, as a rally in bank stocks on strong quarterly earnings was offset by fresh fears of Federal Reserve rate hikes just as data flagged signs of a weaker consumer.

The S&P 500 fell 0.7%, the Dow Jones Industrial Average added 0.8%, or 261 points, and the Nasdaq fell 0.9%.

Fed Governor Christopher Waller said further rate hikes were still needed to curb inflation, adding that investors shouldn’t “expect rates to fall any time soon.”

The hawkish remarks from Waller pushed the United States 2-Year sharply higher as investors upped their bets on further Fed monetary policy tightening just as data showed signs of weakness in the consumer.

The report showed “further slowing in consumer spending, but importantly, not a sharp deterioration,” Morgan Stanley said in a note. “The largest declines were driven by a reversal in gas prices, but there was also broad-based weakness across nearly every category of spending,” it added.

The backdrop of rising rates weighed heavy on big tech, except for Alphabet (NASDAQ:GOOGL), with Microsoft (NASDAQ:MSFT) falling more than 1% following Apple Inc (NASDAQ:AAPL) and Meta Platforms Inc (NASDAQ:META).  

Financials, however, bucked the trend lower as major Wall Street banks kicked off the quarterly earnings season with mostly better-than-expected results.

JPMorgan Chase&Co (NYSE:JPM) Chase was up about 7% after reporting first-quarter results that beat analyst estimates on the top and bottom lines as net interest margin was bolstered by higher interest rates.

Wells Fargo &Company (NYSE:WFC) and Citigroup Inc (NYSE:C) were also in rally mode after reporting better-than-expected results, rising more than 1% and 4%, respectively.

The recent bank turmoil did, however, have an impact on banks, with JPMorgan and Wells Fargo reporting a 7%% and 8% decline in deposits from a year ago.

In other news, UnitedHealth Group (NYSE:UNH) fell more than 2% despite lifting its 2023 guidance and delivering first-quarter results that topped estimates.

Electric vehicle maker Lucid Group Inc (NASDAQ:LCID), meanwhile reported preliminary first-quarter deliveries of 2,314 vehicles that fell short of estimates of 1,406, sending its shares more than 5% lower.

Rival EV maker Rivian Automotive (NASDAQ:RIVN) also dived into the red, down 8%, after Piper Sandler downgraded the stock to Neutral from Buy, citing worries about high costs.

Boeing  (NYSE:BA), a major Dow component, fell more than 5% after the aircraft maker warned it would have to halt some 737 Max deliveries, citing a new supplier quality problem.