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Dow futures drop 300 points as rates rise and Goldman’s earnings miss expectations

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U.S. stock futures fell sharply Tuesday after Goldman Sachs reported disappointing earnings and as government bond yields hit Covid-era highs.

Futures tied to the Dow Jones Industrial Average slipped by 315 points, or 0.9%. S&P 500 futures fell 1.1%, and Nasdaq 100 futures declined 1.7%. U.S. markets were closed Monday due to the Martin Luther King holiday.

Goldman Sachs shares ticked nearly 4% lower in premarket trading on Tuesday after the bank missed analysts’ expectations for its fourth quarter earnings. Goldman’s operating expenses surged 23% on increased pay for Wall Street employees.

Elsewhere, Microsoft dipped 2.5% after announcing the software giant will buy video game company Activision Blizzard in an all-cash transaction valued at $68.7 billion. Shares of Activision Blizzard surged 37% in premarket trading.

The shortened trading week will feature quarterly reports from 35 companies in the S&P 500, including Bank of America, UnitedHealth and Netflix.

Major banks Wells Fargo, JPMorgan Chase and Citigroup kicked off the earnings season on Friday, with the three companies posting better-than-expected profits. However, the market’s reaction to those results was mixed. Wells Fargo shares posted a gain on the back of those results, but JPMorgan Chase and Citigroup slid.

Overall, 26 S&P 500 companies have reported calendar fourth-quarter earnings thus far, according to Refinitiv. Of those companies, nearly 77% posted bottom-line results that beat analyst expectations.

Treasury yields posted strong gains. The closely watched 2-year yield broke above 1% for the first time since February 2020, the month before the pandemic declaration that sent the U.S. economy into recession. The 2-year Treasury is seen as gauge of where the Federal Reserve will set short-term borrowing rates.

Rates rose along the yield curve, with the benchmark 10-year note hitting 1.83%, its highest since January 2020.

“The economic backdrop to the fourth quarter was positive, boding well for profit and revenue growth,” UBS Global Wealth Management CIO Mark Haefele said in a note last week. “Guidance from companies also looks set to point to continued demand strength in 2022, even if omicron is disrupting some businesses right now.”

In early action Tuesday, Gap shares fell 4.3% after Morgan Stanley downgraded the retailer. Yum! Brands was off 4% and Tesla dropped 2.7%.

The spread of the omicron Covid-19 variant has raised questions over the state of the global economic recovery ever since news of its discovery broke. Some countries and regions reinstated lockdowns and other social distancing measures to curb the outbreak.

However, recent data indicates the spread may be easing. In New York the seven-day average of daily new cases has been falling since hitting a record earlier this month, according to data compiled by Johns Hopkins University. In Maryland, daily infections are down 27% week over week. Cases are also falling in South Africa and the UK.

Rocky start to the year

The latest moves come as equities have struggled to start 2022.

The Dow, S&P 500 and Nasdaq Composite are all down for the year amid concerns over the recent inflationary surge and the prospect of tighter monetary policy from the Federal Reserve.

Philadelphia Fed President Patrick Harker told CNBC last week that the central bank could raise rates three or four times this year. He noted that inflation is “more persistent than we thought a while ago.”

Tech, the biggest S&P 500 sector by market cap, has been hit especially hard this year, falling more than 4%. Big Tech names like Meta Platforms, Amazon, Netflix, Alphabet and Apple are all down year to date.

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