U.S. stocks got battered on Tuesday in a volatile start to the holiday-shortened trading week as rising bond yields, persisting rate pressures and an earnings miss by Goldman Sachs weighed on markets.
The Dow Jones Industrial Average lost more than 540 points and the tech-heavy Nasdaq shed 2.6%, recording its lowest close since October as Wall Street continued to weigh the likelihood of sooner-than-expected interest rate hikes by the Federal Reserve. The S&P 500 was also deep in the red, rounding the session out at a 1.8% loss. Meanwhile, the yield on the benchmark 10-year Treasury rose to its highest level in two years — up to 1.865%
The sell-off is “a continuation of what we've been seeing so far this year — it's all about interest rates,” David Lefkowitz, head of equities for the Americas at UBS Global Wealth Management told Yahoo Finance Live. The rise in the 10-year yield “has big implications for the internals of the market.”
Wall Street was closed on Monday in observance of Martin Luther King Jr. Day but resumed trading Tuesday amid a flurry of corporate results unveiled ahead of the session: Goldman Sachs (GS), PNC Bank (PNC) and Bank of New York Mellon (BK) released earnings reports for the last three months of 2021 before market open.
Goldman Sachs (GS) reported fourth-quarter earnings that fell below analyst expectations — reflecting a decline in profit for the last three months of the year due to weakness in its trading arm, adding to a lackluster lineup of recent bank results. Shares of Goldman Sachs were down 8.3% in intraday trading to $349.30 a piece.
"Investment banking results based on surging advisory were really evident at Goldman Sachs, but I think trading revenues are going to be a little lighter because the pandemic-induced volatility is beginning to abate," abrdn senior bank analyst and portfolio manager Jon Curran told Yahoo Finance Live. That, in tandem with the expense outlook, is what the market may be reacting to today."
With earnings season in high gear, investors will set their focus on company profits and other corporate metrics, shifting away — at least temporarily — from worries around the Federal Reserve’s tightening of monetary policy and economic uncertainty that have rattled stocks in recent weeks.
“I think a lot of rationality tends to come back around earnings season,” OANDA market analyst Craig Erlam told Yahoo Finance Live. “That’s when people will start to get a better grasp, or at least start to maybe look at markets through a more rational lens, and we could start to see a bit of normality return for the markets.”
Worries over sooner-than-expected interest rate increases have weighed on equity markets in 2022 so far. The S&P 500 is down 2.79% year-to-date, while the Dow has lost 1.84%. The Nasdaq has shed a whopping 5.93% since the start of this year, with more than one-third of companies in the index at least 50% from their 52-week highs, according to Bloomberg data.
"It's really interesting to see markets digest this transition from green light 'Go' to yellow light 'Caution,'" FS Investments chief Market Strategist Troy Gayeski told Yahoo Finance Live. "It's just a much different environment than we've been in since the pandemic bottom."
Still, the outlook for 2022 remains positive among strategists who anticipate that although the year is unlikely to match the blockbuster returns of 2021, stocks are in good shape for solid returns ahead.
“From an economic perspective 2022 will look like a moderated version of last year, but investors should be cognizant that the prevailing tailwinds are beginning to calm," Charlie Ripley, senior investment strategist for Allianz Investment Management, said in a note. “Lingering effects from the pandemic are likely to bleed into 2022, but the outright threat from COVID-19 to the economy will continue to fade.”
“Risk assets will likely have positive returns in the post-COVID economy, but headwinds are picking up and performance will be choppier than in past years,” he added.
On the economic front, investors digested fresh data out of Washington, including new reads on the New York Federal Reserve’s Empire Manufacturing Index and the National Homebuilders Association’s Housing Market Index.
The National Association of Home Builders/Wells Fargo Housing Market index showed that confidence among U.S. single-family homebuilders declined in January after four months of consecutive increases on the print. According to the trade association, higher material costs and shortages added weeks to typical single-family construction times as the U.S. economy struggled with rising inflation and backed-up supply chains.
4:07 p.m. ET: Equity markets get clobbered as rate rout persists
Here's how the markets closed after a volatile session on Tuesday:
S&P 500 (^GSPC): -85.74 (-1.84%) to 4,577.11
Dow (^DJI): -543.34 (-1.51%) to 35,368.47
Nasdaq (^IXIC): -386.86 (-2.60%) to 14,506.90
Crude (CL=F): +$2.05 (+2.45%) to $85.87 a barrel
Gold (GC=F): -$2.60 (-0.14%) to $1,813.90 per ounce
10-year Treasury (^TNX): +0.90 bps to yield 1.865%
2:17 p.m. ET: Meme stocks tumble as broader markets trudge lower
The sell-off in speculative assets such as meme stocks deepened on Tuesday as investors dumped riskier, money-losing investments amid a broader rout in equities spurred by concerns over interest rate increases.
According to Bloomberg, meme-stock favorites AMC Entertainment (AMC) and GameStop (GME) led declines among the group. Shares of the AMC were down 10.65% in the midday session to trade at $18.38 a piece, while GME fell 7.37% to $108.05 per share.
Declines also worsened for other high-risk investments: losses for or companies that went public via SPACS, or mergers with blank-check firms, accelerated, with the De-SPAC Index sinking to another record low of 4.5%, per Bloomberg data. Star fund manager Cathie Wood's Ark Innovation ETF (ARKK) dropped 4% to the lowest level since July 2020 with all components that comprise the strategy trading lower. The fund's stock price was $77.40 in the afternoon session, down 3.5%.
1:45 p.m. ET: Activist investor comes for Kohl's
Shares of Kohl's (KSS) surged in intraday trading after activist hedge fund Macellum Advisors urged the department store chain to explore strategic alternatives, putting itself up for sale among them, if the company does not improve its business to boost its stock price.
Macellum said in a new letter on Tuesday that Kohl's is "without accountability" and the executive team is "incapable" of developing the right assortment and value proposition that resonates with shoppers.
"The Kohl's board of directors needs a shareholder in the room that has a sense of urgency," said Jonathan Duskin, Macellum managing partner, on Yahoo Finance Live. "There is a sense of entitlement on the board and also combined with complacency."
The push comes months after the retailer reached a deal with Macellum and other activist investors in which it agreed to add two of the stakeholders' nominees to its board as independent directors.
Kohls jumped nearly 10% during the session. The stock traded at about $50.03 per share in the afternoon, up 4.73%.
11:00 a.m. ET: Peloton taps McKinsey & Co for possible restructuring
Exercise equipment manufacturer Peloton Interactive (PTON) has solicited consulting firm McKinsey & Co to review its cost structure in a move that may lead to job cuts, according to a report from CNBC.
Shares of the company plunged as much as 5.5% in morning trading, grazing an 18 month-low as broader markets declined. Peloton was down 3.8% to $30.14 per share as of 10:55 a.m. ET.
The company wiped out more than 75% in market value last year in 2021 amid lower demand for bikes as consumers gradually returned to pre-pandemic habits. As a result, Peloton has also slashed its full-year outlook by up to $1 billion in November, attributing the change to a faster-than-expected slowdown in purchases of its equipment.
10:30 a.m. ET: Airline stocks drop amid broader market sell-off
U.S. airline stocks fell in morning trading to mark the second straight session of losses, putting the sector on pace for its biggest two-day drop in more than a month, according to Bloomberg data.
The S&P Supercomposite Airlines Industry Index (S15AIRL) lost as much as 1.9% at open after the index closed down 2% on Friday, per Bloomberg. The index is now down as much as 3.8% across two sessions, the biggest two-day drop since December 14.
All nine companies in the index were in the red: United Airlines (UAL) ticked 0.32% lower to $46.59 per share, Delta Air Lines (DAL) was down 0.30% to trade at $40.19 a piece, and Hawaiian Holdings (HA) dipped 0.15% to $20.15 per share.
In addition to taking a hit on broader declines spurred by interest rate worries, airlines have also been battered by several other factors, including winter weather, virus disruptions, and the impending rollout of 5G, which could cause major issues for the aviation industry.
10:15 a.m. ET: U.S. home builder sentiment slips in January
The National Association of Home Builders/Wells Fargo Housing Market index showed that confidence among U.S. single-family homebuilders declined in January after four months of consecutive increases on the print.
According to the trade association, higher material costs and shortages added weeks to typical single-family construction times as the U.S. economy struggled with rising inflation and backed-up supply chains.
The index dipped one point to 83 this month. A reading above 50 indicates that more builders view conditions as good than poor.
9:45 a.m. ET: Activision Blizzard stock surges on Microsoft deal announcement
Shares of entertainment company Activision Blizzard (ATVI) jumped after Microsoft (MSFT) said it will acquire the company in a deal valued at $68.7 billion, marking the software giant's largest takeover yet. Microsoft is expected to buy the video game publisher for $95 per share.
ATVI shares were up more than 30% in morning trading to about $85 a piece. Microsoft ticked lower at open, down 1.27% to $306.27 per share.
Upon closure of the deal, Microsoft is poised to become the world's third-largest gaming company by revenue, behind Tencent (TCEHY) and Sony (SONY), the tech giant said. The deal marks another consolidation move within the gaming industry — and massive bet on the future of the metaverse.
“This is a great extension and, oh, by the way, smart timing on Microsoft’s part,” TECHnalysts Research President Bob O'Donell told Yahoo Finance Live.
9:36 a.m. ET: Wall Street's major indexes plunge as rate worries persist
Here were the main moves at markets as trading reopened after the holiday weekend:
S&P 500 (^GSPC): -68.15 (-1.46%) to 4,594.70
Dow (^DJI): -550.15 (-1.53%) to 35,361.66
Nasdaq (^IXIC): -284.99 (-1.91%) to 14,608.77
Crude (CL=F): +$0.83 (+0.99%) to $84.65 a barrel
Gold (GC=F): -$1.10 (-0.06%) to $1,815.40 per ounce
10-year Treasury (^TNX): +0.68 bps to yield 1.84%
7:40 a.m. ET: Goldman Sachs profit misses analyst estimates
Goldman Sachs (GS) reported fourth-quarter earnings that fell below analyst expectations — reflecting a decline in profit for the last three months of the year due to weakness in its trading arm. Still, the investment bank's robust deal activity helped it post record full-year profits.
Shares of Goldman Sachs were down more than 2.5% ahead of open to about $381 a piece.
The company's results showed net earnings applicable to common shareholders fell to $3.81 billion in the period ending December 31, from $4.36 billion the quarter a year earlier. Earnings per share fell to $10.81 from $12.08 the prior year.
Consensus analyst estimates expected the bank to report adjusted earnings of $11.65 per share on revenue of $12.010 billion, according to Bloomberg data.
7:00 a.m. ET Tuesday: Contracts on all three major indexes decline ahead of open
Here were the main moves in futures trading Tuesday morning:
S&P 500 futures (ES=F): -48.75 points (-1.05%), to 4,606.00
Dow futures (YM=F): -241.00 points (-0.67%), to 35,555.00
Nasdaq futures (NQ=F): -258.00 points (-1.65%) to 15,337.75
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc