Stocks Fall Sharply As Treasury yields Jump

5:05 pm Tuesday, January 18th, 2022

Wall Street’s main indexes fell sharply on Tuesday as weak results from Goldman Sachs weighed on financial stocks and tech shares continued their sell-off to start the year as U.S. Treasury yields rose to milestones.

The 2-yr Treasury note yield is up eight basis points to 1.04% on growing expectations for the Fed to hike rates four times this year (possibly a 50-bps increase in March), and the 10-yr yield is up nine basis points to 1.86% on expectations for stickier inflation pressures.

All 11 S&P 500 sectors are trading lower with losses between 0.9% (energy) and 2.7% (financials) with little interest to buy the dip. Growth stocks and value stocks are falling together, as are the mega-caps with micro-caps.

The financials sector (-2.5%) is getting no relief from the higher rates because Goldman Sachs (GS 350.00, -30.97, -8.1%) and Charles Schwab (SCHW) are down 8% and 6%, respectively, after missing EPS estimates.

Goldman’s bottom line was pressured by a sharp increase in compensation expenses, which is a headwind investors fear more companies will highlight throughout the earnings season. The company also expects inflationary pressures to intensify in the near-term.

Higher oil prices are feeding into the inflation expectations, but the energy sector (-0.9%), which was rallying 1.6% intraday on higher prices, has turned negative. Exxon Mobil (XOM) is one of the few energy components trading higher after announcing a goal to have net zero greenhouse gas emissions by 2050.

Other negative factors include a deteriorating technical posture — the Nasdaq Composite could close below its 200-day moving average (14731) for the first time since April 2020 — and a negative reading (-0.7) in the Empire State Manufacturing Survey for January.

Separately, Activision Blizzard (ATVI) was up 25% after agreeing to be acquired by Microsoft (MSFT) for $68.7 billion, or $95.00 per share, in cash.

Reviewing today’s economic data:

The Empire State Manufacturing Survey for January dropped to -0.7 (Briefing.com consensus 25.0) from 31.9 in December.

The NAHB Housing Market Index for January decreased to 83 (Briefing.com consensus 84) from 84 in December.