Stock market news live updates: Stocks extend losses as rate worries persist; Nasdaq erases 2.6%, Dow tumbles 540 points

U.S. stocks got battered on Tuesday in a volatile start to the holiday-shortened trading week as rising bond yields, persisting rate pressures and an earnings miss by Goldman Sachs weighed on markets.

The Dow Jones Industrial Average lost more than 540 points and the tech-heavy Nasdaq shed 2.6%, recording its lowest close since October as Wall Street continued to weigh the likelihood of sooner-than-expected interest rate hikes by the Federal Reserve. The S&P 500 was also deep in the red, rounding the session out at a 1.8% loss. Meanwhile, the yield on the benchmark 10-year Treasury rose to its highest level in two years — up to 1.865%

The sell-off is “a continuation of what we’ve been seeing so far this year — it’s all about interest rates,” David Lefkowitz, head of equities for the Americas at UBS Global Wealth Management told Yahoo Finance Live. The rise in the 10-year yield “has big implications for the internals of the market.”

Wall Street was closed on Monday in observance of Martin Luther King Jr. Day but resumed trading Tuesday amid a flurry of corporate results unveiled ahead of the session: Goldman Sachs (GS), PNC Bank (PNC) and Bank of New York Mellon (BK) released earnings reports for the last three months of 2021 before market open.

Goldman Sachs (GS) reported fourth-quarter earnings that fell below analyst expectations — reflecting a decline in profit for the last three months of the year due to weakness in its trading arm, adding to a lackluster lineup of recent bank results. Shares of Goldman Sachs were down 8.3% in intraday trading to $349.30 a piece.

“Investment banking results based on surging advisory were really evident at Goldman Sachs, but I think trading revenues are going to be a little lighter because the pandemic-induced volatility is beginning to abate,” abrdn senior bank analyst and portfolio manager Jon Curran told Yahoo Finance Live. That, in tandem with the expense outlook, is what the market may be reacting to today.”

With earnings season in high gear, investors will set their focus on company profits and other corporate metrics, shifting away — at least temporarily — from worries around the Federal Reserve’s tightening of monetary policy and economic uncertainty that have rattled stocks in recent weeks.

“I think a lot of rationality tends to come back around earnings season,” OANDA market analyst Craig Erlam told Yahoo Finance Live. “That’s when people will start to get a better grasp, or at least start to maybe look at markets through a more rational lens, and we could start to see a bit of normality return for the markets.”

Worries over sooner-than-expected interest rate increases have weighed on equity markets in 2022 so far. The S&P 500 is down 2.79% year-to-date, while the Dow has lost 1.84%. The Nasdaq has shed a whopping 5.93% since the start of this year, with more than one-third of companies in the index at least 50% from their 52-week highs, according to Bloomberg data.

“It’s really interesting to see markets digest this transition from green light ‘Go’ to yellow light ‘Caution,'” FS Investments chief Market Strategist Troy Gayeski told Yahoo Finance Live. “It’s just a much different environment than we’ve been in since the pandemic bottom.”

Still, the outlook for 2022 remains positive among strategists who anticipate that although the year is unlikely to match the blockbuster returns of 2021, stocks are in good shape for solid returns ahead.

“From an economic perspective 2022 will look like a moderated version of last year, but investors should be cognizant that the prevailing tailwinds are beginning to calm,” Charlie Ripley, senior investment strategist for Allianz Investment Management, said in a note. “Lingering effects from the pandemic are likely to bleed into 2022, but the outright threat from COVID-19 to the economy will continue to fade.”

“Risk assets will likely have positive returns in the post-COVID economy, but headwinds are picking up and performance will be choppier than in past years,” he added.

On the economic front, investors digested fresh data out of Washington, including new reads on the New York Federal Reserve’s Empire Manufacturing Index and the National Homebuilders Association’s Housing Market Index.

The National Association of Home Builders/Wells Fargo Housing Market index showed that confidence among U.S. single-family homebuilders declined in January after four months of consecutive increases on the print. According to the trade association, higher material costs and shortages added weeks to typical single-family construction times as the U.S. economy struggled with rising inflation and backed-up supply chains.

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