The Nasdaq logo is displayed on Times Square in New York City, U.S. December 3, 2021, the Nasdaq Market site. Wall Street's main index fell on Tuesday as Goldman Sachs led declines in banks after posting its quarterly profit below expectations, while tech stocks fell as a result of rising Treasury yields.
After missing the fourth quarter earnings estimates on weak trading activity, Goldman GS.N plunged 7.7% and dragged the S&P 500 banks index SPXBK down by 2.4%.
Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey, said the market as a whole is trying to assess the ability of companies to maintain the bottom line in the face of rising costs.
Banking may be the first sector to report in 2022 that costs are running faster than revenues. All 11 major S&P 500 sectors fell in early afternoon trading, with the broader financial index SPSY leading declines and the growth-heavy S&P 500 technology SPLRCT and S&P 500 communication services SPLRCL indexes falling around 1.6% each.
The benchmark 10 year U.S Treasury yield jumped to two-year highs and two-year yields that track short-term rate expectations. It was at 1% for the first time since February 2020, as traders were positioning for a more hawkish Federal Reserve ahead of a policy meeting next week.
Seema Shah, chief strategist at Principal Global Investors said that investors have been rewarded by the 'overweight tech' trade for the better part of the past decade.
Strong companies with robust balance sheets and pricing power still have more to run, while conditions for the sector are getting trickier. The period ahead may not be so pretty for the profitless ones, technically speaking. The Nasdaq IXIC fell as much as 10% below the intraday record level reached on November 22. It was trading about 9% less than its Nov. 19 closing record. To confirm a correction, the index would need to close 10% or more below the record close.
The Dow Jones Industrial Average DJI was down 460.15 points, or 1.28%, at 35,451. The S&P 500 SPX was down 61.14 points, or 1.31%, at 4,601. 71, the Nasdaq Composite IXIC was down 236.88 points, or 1.59%, at 14,656. According to a BofA survey, fund managers have cut their overweight positions in tech to their lowest levels since 2008, while a survey by Deutsche Bank found that a majority of respondents believed that the U.S. technology stocks are in a bubble. The Nasdaq IXIC and the S&P 500 SPX fell for a second week on Friday, as bearish sentiment on tech and disappointing results from big banks weighed on the U.S. indexes.
Bank of America BAC.N and Morgan Stanley MS.N will post their fourth quarter results on Wednesday, while Netflix will kick off reporting on Thursday.
Activision Blizzard ATVI.O surged 27.1% after Microsoft said it would buy the videogame publisher for $68.7 billion in cash, the largest deal in the sector.
Microsoft's shares MSFT.O fell 1.7% while other gaming stocks Electronic Arts EA.O and Take-Two Interactive TTWO.O gained 5.2 and 3.7%, respectively. Airbnb ABNB.O dropped by 3.3% after Gordon Haskett cut the home rental firm's shares to hold Declining issues outnumbered advancers for a 4.34 to 1 ratio on the NYSE and a 4.51 to 1 ratio on the Nasdaq.
The S&P index has recorded 32 new 52 week highs and seven new lows while the Nasdaq has recorded 62 new highs and 421 new lows.