Dow falls 400 points as bank stocks struggle after earnings

U.S. stocks struggled for direction on Friday morning as some major bank stocks declined after earnings.

The Dow Jones Industrial Average slid 424 points, or about 1.2%. The S&P 500 lost 0.7%, while the tech-heavy Nasdaq Composite dipped 0.5%.

Bank stocks, which had outperformed in recent weeks as interest rates moved higher, were broadly lower as their reports appeared to underwhelm investors despite strong headline numbers.

JPMorgan Chase, the No. 1 U.S. bank by assets, showed profit and revenue that topped estimates, but shares fell nearly 5%. The company’s earnings were helped by a large credit reserve release, and CFO Jeremy Barnum warned that the company would likely miss a key profit target in the next two years.

Citigroup’s stock fell 1.7% after the bank beat revenue estimates but showed a 26% decline in profits. Shares of Morgan Stanley and Goldman Sachs also declined.

Meanwhile, shares of Wells Fargo added more than 4% after the bank’s revenue topped expectations. CEO Charles Scharf said in a release that loan demand picked up in the second half of the year.

“The one thing that really jumps out is expense growth. You saw that in both Wells Fargo’s and JPMorgan’s numbers,” Gerard Cassidy, large cap bank analyst at RBC Capital Markets, said on “Squawk on the Street.” Wells Fargo already had plans for future cost-cutting, which might explain its outperformance on Friday, Cassidy said.

On the data front, retail sales were down 1.9% in December, a worse reading than the 0.1% drop expected by economists surveyed by Dow Jones. January’s preliminary consumer sentiment reading from the University of Michigan came in lower than expected as Americans reported higher long-term inflation expectations.

Retail stocks were under pressure after the report, with Bath & Body Works falling more than 3%.

Elsewhere, shares of paint maker Sherwin-Williams lost 2.7% after the company warned that fourth-quarter earnings would miss estimates, citing issues in sourcing materials and staffing during the omicron surge. Money-management behemoth BlackRock posted earnings that beat on bottom-line earnings but missed slightly on top-line revenue. Shares fell more than 1%.

Casino stocks were another bright spot on Friday morning. Las Vegas Sands surged 11.5%, while Wynn Resorts gained 7.5%.

The jump came after Macau’s government announced it would allow just six casino licenses in the gambling hub. The companies rising Friday are among those that already are operating there.

All of the major averages slid during regular trading on Thursday. The Dow and S&P 500 fell 0.48% and 1.42%, respectively, registering the first down day in three. At one point the 30-stock benchmark had been up more than 200 points. The Nasdaq Composite was the relative underperformer, shedding 2.51% and snapping a three-day winning streak as technology stocks came under pressure.

Tech stocks fell sharply in the first week of the year as the Fed signaled a more aggressive approach to inflation, and this week’s early rally has now been reversed.

“There’s a thought that the pricing in of a more hawkish Fed is a process, and not a week. Although a lot got done last week, this is going to be a process, and I think we’re probably going to have more volatile days in tech and growth stocks in general this quarter,” said Alicia Levine, head of equities, capital markets advisory at BNY Mellon Wealth Management.

“The first quarter should be rising yields, rising rates, outperformance of cyclicals, and we think that the long-duration growth names are going to have a challenging quarter,” Levine added.

In other data news, business inventories for November came in higher than expected, but industrial production disappointed, declining 0.1% compared to a projected 0.2% gain.

The reports come as investors closely watch all of the latest inflation readings. Readings for the producer price index and the consumer price index showed historic year-over-year gains this week but came in lower than some experts feared.

With Thursday’s move lower, the major averages are now in negative territory for the week. The Dow and S&P are on track for their second straight negative week, while the Nasdaq is on track for a third week of losses.