Dow drops more than 300 points weighed down by Goldman Sachs stock

Traders work on the floor of the New York Stock Exchange during morning trading on January 17, 2023 in New York City.

Michael M. Santiago | Getty Images

The market was divided on Tuesday as investors struggled to build on the momentum of early 2023 and weighed up the latest earnings results.

The Dow Jones Industrial Average lost 335 points, or 1%, dragged down by a fall in Goldman Sachs stock. The Nasdaq Composite rose 0.2%. The S&P 500 hovered on the flat line.

Goldman fell about 7% after the bank reported its worst profit margin in a decade for the fourth quarter. Results were under pressure from declining income from investment banking and asset management. Meanwhile, rival Morgan Stanley posted better-than-expected numbers, in part thanks to record asset management returns. Shares rose 7%.

Those results came after other major banks such as JPMorgan and Citigroup reported mixed quarterly results.

About 7% of S&P 500 earnings through Tuesday have reported earnings, according to FactSet. Of those companies, 70% have exceeded expectations. United Airlines comes after the bell with its quarterly figures.

Wall Street is having consecutive positive weeks to start the new year, but according to Mike Wilson, chief US equity strategist at Morgan Stanley, investors may have entered a hall of mirrors.

“This year’s rally has been led by low-quality and heavily shorted stocks. However, there was also a strong movement in cyclicals versus defensives. This movement in particular convinces investors that they are missing something and need to reposition.” said Wilson.

“Honestly, it’s been a powerful shift, but we also recognize that bear markets have a way of fooling everyone before they’re done,” he added. “We’re not biting into this particular head fake/bear market rally because our work and process is so convincingly bearish, and we trust it.”

Dow Jones Industrial Average YTD

Year-to-date, the Nasdaq Composite leads the way, up 5.9% as investors bought worn-out tech stocks while hopes of an improving landscape for growth stocks rose. The S&P 500 and Dow are up about 4% and 2% respectively since the start of the year.

Gains have been made on the first crop of inflation-linked data that investors say point to a contracting economy, hoping it justifies the Federal Reserve to rein in rate hikes. Last week, the consumer price index for December showed that prices were down 0.1% from the previous month, but prices were still 6.5% higher than in the same month a year ago.