Stock Market Sell-Off Continues As Rates Surge, Goldman Sachs Falls 8%

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.

Bank earnings continued to disappoint as firms warned of rising expenses.

Richard Drew/ASSOCIATED PRESS

Key Facts

The Dow Jones Industrial Average fell 1.5%, around 550 points, while the S&P 500 lost 1.6% and the tech-heavy Nasdaq Composite 1.8%.

Shares of Goldman Sachs plunged over 8% after the bank reported disappointing fourth-quarter earnings: Profits came in below expected, falling 13% 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% due to “significantly higher” pay for employees.

Government bond yields, meanwhile, continued to post strong gains as the 2-year yield broke above 1% for the first time since February 2020, right before the pandemic sent the economy into a recession.

The benchmark 10-year Treasury note also hit 1.85%, 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 over 2% while Meta Platforms, formerly Facebook, lost nearly 4%.

Surprising Fact:

Shares of Activision Blizzard, the gaming company behind the wildly successful “Call of Duty” franchise, surged over 28% 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% in January, while the S&P 500 has declined over 4% and the tech-heavy Nasdaq more than 7%. Markets have been weighed down by ongoing investor concerns about surging inflation and tighter monetary policy from the Federal Reserve.