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Major North American indexes sold off on Friday after major U.S. banks’ earnings failed to impress, capping a week marked by market-moving inflation data, evolving expectations for U.S. Federal Reserve policy, and looming geopolitical tensions.

All three major U.S. indexes fell more than 1%, and registered losses on the week. The Toronto Stock Exchange’s S&P/TSX composite index ended down 0.95%, its biggest decline since Feb. 13. For the week, it lost 1.64%, after eight straight weeks of gains.

The S&P 500 index notched its biggest weekly percentage loss since January, while the Dow Jones Industrial Average’s weekly loss was its steepest since March 2023.

“When we look at what’s happened in the macro space, inflation has taken a turn for the worse and that has put more pressure on companies to deliver this earnings season,” said Mike Dickson, head of research at Horizon Investments in Charlotte, North Carolina. “Everyone’s a bit jittery with intense focus on how good earnings need to be.”

Results from a trio of big banks marked the unofficial launch of first-quarter earnings season.

JPMorgan Chase & Co, the biggest U.S. bank by assets, posted a 6% profit increase but its net interest income forecast fell short of expectations. Its shares slid 6.5%.

Wells Fargo & Co’s stock inched lower after profits fell 7% as net interest income dropped on weak borrowing demand.

Citigroup posted a loss after spending on employee severance and deposit insurance. Its stock dipped 1.7%.

Economic data this week, particularly Wednesday’s hotter-than-expected Consumer Price Index report, has suggested that inflation could be stickier than previously thought, prompting investors to reset expectations about the timing and extent of the U.S. Federal Reserve’s rate cuts this year.

“It’s a very real risk that we won’t get any rate cuts this year,” Dickson said, adding that while he does not expect a hike, the Fed would probably prefer to keep rates higher for longer.

“There’s just no data point that you can actually look at right now that says the Fed should cut rates.”

Boston Fed President Susan Collins said she expects a couple of rate cuts this year, even though it could take inflation some time to return to its targeted level.

Austan Goolsbee, president of the Chicago Fed, said he remains focused on the Personal Consumption Expenditures (PCE) report due on April 26 for a clearer picture of inflation’s progress toward the central bank’s target.

Geopolitical tensions continue to simmer as Iran threatened to take revenge on Israel for the April 1 airstrike on its embassy in Damascus, adding momentum to the sell-off.

“Geopolitical risks are difficult to nail down but they could keep energy prices elevated, which would not be helpful to for the CPI situation.”

The Dow Jones Industrial Average fell 475.84 points, or 1.24%, to 37,983.24. The S&P 500 lost 75.65 points, or 1.46%, at 5,123.41 and the Nasdaq Composite dropped 267.10 points, or 1.62%, to 16,175.09.

All 11 major sectors in the S&P 500 closed in the red, with materials suffering the steepest percentage loss.

Advanced Micro Devices and Intel fell 4.2% and 5.2%, respectively, following a report that Chinese officials told the country’s largest telecom firm earlier this year to phase out foreign chips by 2027.

U.S. Steel slid 2.1% after shareholders voted to approve a proposed merger with Nippon Steel Corporation.

The Toronto market has climbed 4.49% since the start of the year. On Tuesday, it touched a new record closing high at 22,361.78. The decline since then came as U.S. data showed inflation heating up in March.

All ten major TSX sectors lost ground on Friday, including a decline of 0.91% for heavily-weighted financials.

“Geopolitics has some negative connotation to the price action but it’s also a measure of deep overbought conditions that we have had in broad indices,” said Sid Mokhtari, chief market technician for CIBC Capital Markets.

“We are not seeing any alteration from a longer-term bull perspective. Trends are still in good shape.”

The TSX materials group, which includes metal miners and fertilizer companies, was down 1.03% as gold retreated from an earlier record high.

Oil settled 0.8% higher at US$85.66 a barrel, supported by Middle East tensions, but the gain was not enough to boost energy in Toronto. The sector lost 1.03%, while technology was down 1.63%.

Declining issues outnumbered advancers on the NYSE by a 4.19-to-1 ratio; on Nasdaq, a 3.16-to-1 ratio favored decliners. The S&P 500 posted 12 new 52-week highs and nine new lows; the Nasdaq Composite recorded 35 new highs and 211 new lows. Volume on U.S. exchanges was 11.67 billion shares, compared with the 11.41 billion average for the full session over the last 20 trading days.

Reuters, Globe staff

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