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Market Recap 

After opening deep in the red, the market closed the day modestly lower as market participants digested new earnings reports and the possibility for an aggressive interest rate hike in the Fed’s July 27 meeting. The tech-heavy Nasdaq teetered into positive territory to cap the session to finish green. The price of crude oil continued had an extremely volatile day, falling to a low of around $92 per barrel before recovering to around $96.50

In earnings news, JP Morgan Chase (JPM), the largest bank in the United States, reported a wide-than-expected drop in second quarter profits of 28%, attributing much of the decline to a $1.1 billion in provision for credit losses amid concerns of an economic slowdown and possible recession.

CEO Jamie Dimon said, “In our global economy, we are dealing with two conflicting factors, operating on different timetables. The U.S. economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy. But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road.”

Morgan Stanley (MS) revealed results that missed analyst expectations, dragged down primarily by a slump in investment banking revenue due to volatile market conditions. 

The move comes the day after the Bureau of Labor Statistics showed that headline inflation continues to accelerate from already elevated levels. The consumer price index (CPI) rose a whooping 9.1% year-over-year, another drastic acceleration from the already-elevated 8.6% reported last month and higher than estimates of 8.8%. “Core” CPI, which excludes the more volatile food and energy components, rose 5.9% in June, compared to 6.0% in May. Economists expected a 5.7% increase in this measure.

These figures confirm another 75 basis point hike to the interest rate at the conclusion of the July 27 policy meeting, with some even speculating the Fed may be forced to consider a dramatic 100 basis point hike. 

Michael Pearce, senior US economist at Capital Economics, said “Overall, this report confirms that the Fed will need to hike by 75bp again at the end-July meeting. While some will draw parallels with the shockingly bad May CPI report, the backdrop is markedly different — commodity prices have fallen sharply and we’ve seen clearer signs of an economic slowdown, both of which will contribute to weaker price pressures ahead.”

The producer price index for final demand — a gauge of wholesale and business prices — surged 11.3% year-over-year in June and 1.1% from the prior month, the Labor Department also reported Thursday, underscoring inflationary pressures at the wholesale level.

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