US stock market tumbles at record high levels; banking stocks pull the key indices lower

The US markets wrapped the rally at record high levels and closed in the red on Tuesday. The Dow Jones fell 398 points or 0.8%, the S&P500 fell 0.9% and the NASDAQ ended in losses of 0.1%. Finance stocks primarily led Tuesday’s losses as investors grew concerned over the impact of interest rate caps on the lending companies.

The US CPI inflation came in below expectations at 0.2%, which boosted the hopes for a rate cut in the coming monetary policy meeting. However, shrugged off the hopes and still sounded cautious about the US markets, as the concerns over the Federal Reserve’s independence could undermine the efforts and take the economy back into a high inflation era.

Among the losers, JPMorgan Chase shares fell over 4% after the bank also warned that a 10% cap on the interest rate could severely hurt the economy and consumers. The warning by the bank led to broader weakness in the market. Jamie Dimon also warned that the Federal Reserve’s independence could push the economy back into the high inflation trap.

Investors and market participants will be closely watching the banking earnings, starting with Bank of America, Wells Fargo & Company, and Citigroup Inc. on Wednesday. Commentary on the credit card interest rate cap, outlook on the economy will be closely watched.

The fears of supply disruptions from Iran kept the crude oil prices higher on Tuesday, as large US stockpiles failed to boost the hopes. The WTI and Brent crude oil prices remained largely unchanged on Wednesday morning, after a sharp rally of 2% on Tuesday.