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Dow sinks 500 points as bond yields, earnings rattle investors

Stocks’ record-breaking run in 2021 has given way to a choppy start to 2022 trading

A specialist trader works inside a booth on the floor of the New York Stock Exchange (NYSE) on January 18. (Brendan Mcdermid/Reuters)
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U.S. stocks got off to a rocky start on the shortened trading week, with the Dow plummeting more than 500 points as inflation fears, disappointing earnings and booming bond yields spooked investors.

These challenges — coupled with a topsy-turvy labor market and the relentless hold of the pandemic — have tempered some of the enthusiasm that defined Wall Street much of last year. Concerns about how they might hurt companies’ bottom lines, especially in an environment with less monetary support from the Federal Reserve, are driving volatility.

Tech stocks bore the sharpest losses Tuesday, with the Nasdaq skidding 2.6 percent and the S&P 500 index falling 1.8 percent. The Dow closed down 1.5 percent.

Investors have been worried about how the tighter monetary environment will impact tech giants that have been pandemic-era favorites. Meta’s shares were down 4.1 percent, while Google and Amazon declined 2.5 and 2 percent

“We’re only two weeks into the year, but so far forecasts for a choppier, two-way stock market in 2022 have been spot on,” Chris Larkin, managing director of trading at ETrade from Morgan Stanley, said Tuesday in commentary emailed to The Post. “With inflation looming large, uncertainty around when it will cool and the Fed’s potential action to tame it seem to be fueling the volatility. Though with earnings on deck, the focus may turn toward single stock fundamentals as traders parse through the winners and losers.”

The tech-heavy Nasdaq has shed nearly 7.3 percent since the start of the year, according to MarketWatch, while the S&P 500 is down nearly 4 percent and the Dow is off more than 2.6 percent.

Goldman Sachs shares tumbled 7 percent after the bank reported disappointing fourth-quarter results. Profits are down 13 percent from the year-ago period to just shy of $4 billion as it logged a massive spike in expenses due to “significantly higher” pay and benefits for its employees. Expenses rose about 23 percent to surpass $7.2 billion, the bank said, a reflection of the growing leverage workers have in the uniquely tight labor market.

Shares of embattled gaming giant Activision Blizzard were halted in premarket trading on word of its acquisition by Microsoft for $68.7 billion sent its stock soaring more than 30 percent. The deal is the largest acquisition in Microsoft’s history, even as Activision Blizzard fends off lawsuits and claims of a toxic work environment. Microsoft’s shares fell 2.4 percent.

Anticipation of higher rates has lifted bond markets, pushing the yield on the 10-year U.S. Treasury note to a pandemic-era high of 1.84 percent on Tuesday. The yield on the two-year U.S. Treasury note, another closely watched metric, crested 1 percent for the first time since February 2020. Bond yields move inversely to prices.

Jon Maier, chief investment officer at Global X ETFs, said in commentary Tuesday that the present volatility is a reflection of investors bracing for higher-than-expected rate cuts. If the yield curve gets steep enough, banks could be more incentivized to lend, Maier noted.

“Rising yields are having a greater impact on certain segments of the market including technology companies, but longer term this steepening yield curve can be a positive for the market,” Maier wrote. “Shares of non-profitable companies are experiencing the brunt of these effects, with negative EPS [earnings per share] Nasdaq Composite names sliding 25% on average since the end of September.”

The market’s record-breaking run in 2021 probably means stocks are due for a pullback, according to Ivan Feinseth, chief investment officer at Tigress Financial Partners. Though the S&P 500 has exploded 120 percent since its pandemic low in March 2020, the markets have had relatively few setbacks despite the ongoing uncertainty of the pandemic, he said.

Will inflation continue to rise? Our economic reporters answer your questions.

“We have only had one 10% pullback in over two years, and that was during a time when interest rates were cut to zero by the Fed,” Feinseth said Tuesday in commentary emailed to The Post. “Since then, we have only had four, just over 5% pullbacks.”

Oil prices rocketed to their highest level since 2014 on Tuesday as a barrage of airstrikes escalated tensions in Yemen and the United Arab Emirates, exacerbating tightness that has lifted prices in recent weeks. West Texas Intermediate crude, the U.S. oil benchmark, rose more than 2.6 percent to trade around $85.50. Brent crude, the international oil benchmark, climbed about 1.9 percent to trade above $88.