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Dow Falls by Nearly 400 Points Due to Goldman Sachs Shares Tanking

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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.

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“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.

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