Dow Jones Struggles as Earnings Season Kicks Off: Diverging Fortunes in the Financial Sector

On Tuesday, the Dow Jones Industrial Average struggled to maintain its early 2023 momentum as investors weighed the latest earnings results. The blue-chip index, which is a stock market index that tracks 30 of the largest and most widely traded publicly listed companies in the United States, lost 391.76 points, or 1.14%, to close at 33,910.85. This decline was accompanied by a 0.2% fall in the S&P 500 to 3,990.97, while the Nasdaq Composite, which is an index of the 100 largest and most actively traded companies on the Nasdaq stock exchange, gained 0.14% to end the day at 11,095.11.

One of the biggest contributors to the decline in the Dow Jones was Goldman Sachs, which slid 6.4% after the bank reported its worst earnings miss in a decade for the fourth quarter. The bank’s results were pressured by declines in investment banking and asset management revenues. On the other hand, rival Morgan Stanley posted better-than-expected numbers, thanks in part to record wealth management revenue. Its shares jumped 5.9%.

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These results came after other major banks such as JPMorgan and Citigroup reported mixed quarterly results. This divergence in performance between Goldman Sachs and Morgan Stanley is indicative of what we can expect in this earnings season, according to Yung-Yu Ma, BMO chief investment strategist, who said, “Even within the financial sector, individual lines of business are faring very differently and Morgan Stanley’s wealth management segment provided a strong ballast.”

As of Tuesday morning, 7% of S&P 500 earnings have reported, according to FactSet. Of these companies, 70% have beaten expectations. United Airlines will report its quarterly results after the bell.

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Wall Street has had a positive start to the new year, but investors may have entered a hall of mirrors, according to Mike Wilson, chief U.S. equity strategist at Morgan Stanley. He said, “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.”

It is important to note that bear markets have a way of fooling everyone before they’re done, according to Wilson. He added, “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.”

In conclusion, Tuesday was a difficult day for the Dow Jones as investors struggled to maintain the early 2023 momentum and weighed the latest earnings results. While some companies, such as Morgan Stanley, posted better-than-expected numbers, others, such as Goldman Sachs, reported disappointing results. This divergence in performance is indicative of what we can expect in this earnings season, with diverging fortunes based on industry and sub-industry. Wall Street has had a positive start to the new year, but investors may have entered a hall of mirrors, and it is important to be aware of the potential for bear markets to fool everyone before they’re done.

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