Dow sinks as recession fears grip Wall Street

Toward the end of the trading session, stocks tried to stage a rebound.

Tech stocks turned positive, and the broader market was well off its lows.

The Dow lost 120 points, or 0.3%, on Thursday.

The S&P 500 dropped by 0.2%.

The Nasdaq Composite rose 0.3%.  

Bank of America revised down its year-end target for the S&P 500 to 3600 from 4500, a 25% decline.

The market could reach lows of 3,000 to 3,200 before the year end, Savita Subramanian, a strategist at BofA, wrote in a note Thursday. Subramanian added that the average S&P decline during a recession is 31%.

BofA forecasts a "mild" recession in the US beginning in the second half of 2022 with five consecutive quarters of negative growth.

"Our derivatives team sees higher downside risks to equities given the historically wide spread between rates and equity volatility, and believes equities are not adequately discounting a recession if we are already in one," wrote Subramanian. "Our advice for equity investors: stick with quality and cash flow yield."

 The S&P 500 currently sits at 3,761.

Federal Reserve Governor Christopher Waller said Thursday that he is open to a one-percentage-point interest rate hike at the central bank's meeting later this month.

Waller said that he currently backs a 75 basis point hike, but he is watching data and is willing to revise his support upwards.

"My base case for July depends on incoming data,” he said at an event in Victor, Idaho. “We have important data releases on retail sales and housing coming in before the July meeting," he said. "If that data comes in materially stronger than expected, it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down.”

An interest rate hike of 100 basis points would be the highest in the current era of the Federal Reserve.

Stocks were down sharply by midday, but they trimmed some of the more substantial losses from earlier in the day.

Investors remain fearful of surging inflation, rate hikes, a recession and what could be a miserable earnings season.

The Dow lost 350 points, or 1.1%, on Thursday.

The S&P 500 dropped by 1%.

The Nasdaq Composite fell by 0.8%.  

Oil prices tumbled Thursday, continuing their monthlong decline as investors grow concerned about a recession.

At one point, US crude prices fell 5% to about $92 a barrel, below the $92.81 at which oil settled on February 24, the day Russia invaded Ukraine. Prices have since pared their losses and are above that level.

Although significant, oil had been climbing higher months ahead of the invasion, as Russia had telegraphed its attack and Western governments warned of a coming assault.

Brent crude, the global benchmark, fell 3%, below $97 a barrel. Brent settled at $97.52 on February 24.

American public pension funds are facing serious challenges that threaten the retirement plans for millions of US state and local government employees.

Pension plans remained severely underfunded during the 11-year bull market that followed the Great Recession. The plunge toward insolvency and high-return markets led fund managers to take on risky bets in hope of staying afloat. Now, the recent selloff has left funds struggling to keep up with their future obligations.

The 100 largest public pension funds in the United States had been funded at just 78.6% of their total obligations at the close of the second quarter, down from 85.5% at the end of 2021 according to analysis by Milliman, an actuarial and consulting firm. The funds lost a whopping $220 billion between March and April alone as Russia's invasion of Ukraine roiled markets.

Public pensions are borrowing increasing sums to meet their payout obligations. Nearly $13 billion in pension obligation bonds were sold in 2021, more than in the past five years combined. Now, they're taking on more risk by investing that leveraged money.

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Mortgage rates are on the rise again after a dramatic drop last week.

The 30-year fixed-rate mortgage averaged 5.51% in the week ending July 14, up from 5.3% the week before, according to Freddie Mac. That is significantly higher than this time last year when it was 2.88%

Rates rose sharply at the start of the year, hitting a high of 5.81% in mid-June. But since then, economic concerns have pushed them lower, with rates last week notching the biggest one week dip since 2008.

Mortgage rates continue to be volatile as the US economy slows and the Federal Reserve raises interest rates in order to cool inflation, said Sam Khater, Freddie Mac's chief economist.

"With rates the highest in over a decade, home prices at escalated levels, and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans," said Khater.

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JPMorgan Chase kicked off the second quarter earnings season with bad news: The bank temporarily suspended share buybacks and fell short of analysts' expectations for earnings and revenue growth.

Profit declined 28% from a year earlier to $8.65 billion and the bank reported earnings of $2.76 per share versus the $2.88 expected by analysts. Managed revenue clocked in at $31.6 billion, missing the $31.95 billion expected, according to Refinitiv data.

Large market swings hurt dealmaking this quarter, the bank reported. Investment-banking fees fell by 54%, more than the 47% predicted by analysts.

Shares of JPMorgan's stock fell by about 3% in premarket trading on Thursday and are down 29% this year.

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US stocks fell sharply after two Wall Street banks kicked off earnings season on a bad note.

JPMorgan suspended share buybacks as earnings and sales fell short of analysts' expectations. The bank said it was preparing for a recession. Morgan Stanley had a similar earnings report.

The news comes on the heels of inflation data that prices rose 9.1% for the year in June. The data has led investors to believe the Federal Reserve will work harder to fight inflation. Nearly 90% of investors are pricing in a full-point rate hike at the central bank's meeting next week, according to the CME. 

The Dow lost 600 points, or 2%, on Thursday.

The S&P 500 dropped by 1.8%.

The Nasdaq Composite fell by 1.7%.