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The Dow falls sharply as Wall Street’s big banks report earnings declines

The Dow falls sharply as Wall Street's big banks report earnings declines
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US stocks ended mixed on Tuesday as Wall Street began a truncated but busy week of corporate earnings.

The Dow Jones Industrial Average (^ DJI) lost nearly 400 points, or around 1.1%, weighed down by bank stocks according to Goldman Sachs (GS) posted its biggest profit drop in a decade. The S&P 500 (^GSPC) ended the day down 0.2%, while the tech-heavy Nasdaq Composite (^IXIC) rose a modest 0.1%.

Goldman Sachs recorded a Bigger than expected drop of 69% in earnings for the fourth quarter, which was impacted by a significant decline in dealmaking revenue and a higher provision for credit losses. Shares fell 6.5%.

Morgan Stanley (WOMAN), meanwhile reported a lower than expected decline in profit. Like its Wall Street peers, the firm’s investment banking operations took a big hit, but higher net interest income and a record quarter for its wealth management business helped cushion the overall numbers. Shares rose 5.8%.

The reports come after a lackluster round of quarterly updates from rivals late last week.

Earnings reports from other industries will boot too in the coming days with United Airlines (UAL) After-hours reporting.

Numbers from Netflix (NFLX) on Thursday are also in focus. The update will likely serve as a potential sign of what’s to come for the tech sector’s earnings, which are set to start in earnest the following week.

As a result, the S&P 500 is expected to report a 3.9% year-over-year decline in earnings for the fourth quarter Data from FactSet Research. It would be the first year-over-year earnings decline reported by the index since a 5.7% decline in the third quarter of 2020.

“We expect earnings to be the focus going forward, where earnings reactions have increased while inflation/FOMC reactions have eased,” Bank of America’s Savita Subramanian and Ohsung Kwon wrote on Friday in a note.

Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, U.S. January 5, 2023. REUTERS/Andrew Kelly

Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, U.S. January 5, 2023. REUTERS/Andrew Kelly

Global business leaders are Meeting in the mountains of DavosSwitzerland, this week for the World Economic Forum. The prospect of a global recession, post-pandemic challenges, climate change and the crisis in Eastern Europe are high on the agenda for the politicians, CEOs and billionaires in attendance. Among the participants is the President of the European Central Bank, Christine Lagarde.

The coming week will also be busy with Fedspeak as several Federal Reserve members are due to make speeches across the country in the coming days.

US Treasury yields rose on Tuesday, with the benchmark 10-year bond rising about 5 basis points to over 3.55%.

Oil rose with West Texas Intermediate Crude Oil (WTI) futures up 1.6% to trade above $81 a barrel.

Tuesday’s moves come after a long weekend that saw US stock and bond markets closed on Monday 16 January, in imitation of Martin Luther King Jr. Day. On Friday all three major averages ended their second consecutive week of earnings.

The tech-heavy Nasdaq Composite posted a whopping 4.8% gain for the week, while the S&P 500 and Dow Jones Industrial Average posted their best performances since November, posting weekly gains of 2.7% and 2%, respectively.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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