The Dow Jones Industrial Average dropped on Tuesday as investors struggled to keep early 2023 momentum and assessed the latest earnings reports.
The blue-chip stock index fell 390 points or 1.1% after Goldman Sachs shares fell. The S&P 500 dipped 0.1%, while the Nasdaq Composite remained steady.
Goldman fell almost 7% as the bank disclosed its biggest fourth-quarter profit shortfall in a decade. Revenue decreases in investment banking and asset management weighed on its earnings. Meanwhile, competitor Morgan Stanley reported better-than-expected earnings, thanks in part to record wealth management revenue. Its stock increased by 6%.
Other large banks, including JPMorgan and Citigroup, posted mixed quarterly results.
According to FactSet, around 7% of S&P 500 earnings had been reported as of Tuesday. Among them, 70% outperformed expectations. After the bell, United Airlines will release its quarterly earnings.
Wall Street is coming off back-to-back good weeks to start the new year, but investors may have entered a hall of mirrors, according to Mike Wilson, Morgan Stanley’s top U.S. equities strategist.
“The rally this year has been led by low quality and heavily shorted stocks. However, it’s also witnessed a strong move in cyclical stocks relative to defensive ones. This move, in particular, is convincing investors they are missing something and must re-position,” he said.
“Truth be told, it has been a powerful shift, but we also recognize bear markets have a way of fooling everyone before they’re done,” Wilson went on to say. “We’re not biting on this particular head fake/bear market rally because our work and process is so convincingly bearish, and we trust it.”
The Nasdaq Composite is up 5.9% year to date, as investors bought battered technology shares on rising prospects of a better environment for growth stocks. Since the beginning of the year, the S&P 500 and Dow have gained around 4% and 2%, respectively.
Gains have emerged due to the first set of inflation-related data, which investors regarded as an indication of a slowing economy, giving the Federal Reserve reason to slow interest rate hikes once again. The consumer price index for December was released last week, with prices falling 0.1% from the previous month but remaining 6.5% higher than the same month a year earlier.