December 7, 2022

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Stock Market Selloff Continues As Rates Surge, Goldman Sachs Falls 7{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b}

Topline

The stock market plunged on Tuesday after Goldman Sachs reported disappointing quarterly earnings—continuing a trend of lackluster bank results, while surging government bond yields hit two-year highs.

Key Facts

The Dow Jones Industrial Average fell 1.5{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b}, around 550 points, while the S&P 500 lost 1.8{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b} and the tech-heavy Nasdaq Composite 2.6{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b}.

Shares of Goldman Sachs plunged around 7{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b} after the bank reported disappointing fourth-quarter earnings: Profits came in below expectations, falling 13{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b} from a year earlier.

Similar to rivals JPMorgan Chase and Citigroup, Goldman also reported rising expenses, which hurt their bottom line, with the bank’s operating expenses surging 23{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b} due to “significantly higher” pay for employees.

Government bond yields, meanwhile, continued to post strong gains as the two-year yield broke above 1{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b} for the first time since February 2020, right before the pandemic sent the economy into a recession.

The benchmark ten-year Treasury note also hit 1.85{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b}, its highest level since January 2020.

Tech stocks continued to remain under pressure on Tuesday, extending a bad run in 2022 as interest rates rise: Amazon fell nearly 3{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b} while Meta Platforms, formerly Facebook, lost 3.5{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b}.

Surprising Fact:

Shares of Activision Blizzard, the gaming company behind the wildly successful “Call of Duty” franchise, surged over 25{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b} after Microsoft announced a takeover. The $68.7 billion acquisition will make Microsoft the third-largest gaming company by revenue once the deal closes.

What To Watch For:

More bank earnings, including Bank of America and Morgan Stanley on Wednesday. So far, the market’s reaction to Wall Street’s biggest banks have been mixed. Shares of JPMorgan Chase and Citigroup slid on Friday despite both firms posting better-than-expected profits, as investors were spooked by rising expenses. Despite solid headline numbers, the quarterly reports largely underwhelmed investors as firms warned about higher expenses and “inflationary pressures,” which could impact future profits.

Crucial Quote:

“Stocks are for sale across the board, with selling pressure in both cyclicals and growth,” says Vital Knowledge founder Adam Crisafulli. “For the second time in as many trading days, markets are getting spooked by a big financial earnings disappointment (GS) and growing concerns about the outlook for corporate margins.”

Key Background:

Stocks have struggled so far in 2022. The Dow is down over 3{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b} in January, the S&P 500 over 4{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b} and the tech-heavy Nasdaq more than 7{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b}. Markets have been weighed down by ongoing investor concerns about surging inflation and tighter monetary policy from the Federal Reserve.

Further Reading:

Here’s Why Big Bank Stocks Like JPMorgan Are Struggling Despite Solid Earnings (Forbes)

Here’s Why Stocks Are Rallying Despite Another Dire Inflation Report (Forbes)

Stocks Surge After Powell Says Fed Not Afraid To Raise Rates Further If Higher Inflation Persists (Forbes)

Zynga Shares Surge 40{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b} After Take-Two Announces $12.7 Billion Takeover (Forbes)

https://www.forbes.com/sites/sergeiklebnikov/2022/01/18/stock-market-sell-off-continues-as-rates-surge-goldman-sachs-falls-8/