The stocks market is selling off after disappointing earnings from Goldman Sachs, the Empire State manufacturing survey showed growth stalled in January, and as surging yields have investors abandoning rate-sensitive sectors such as technology. The emergence of skyrocketing expenses for Wall Street banks has many investors worried that wage inflation may have been broadly underpriced across the entire US economy.
The Empire manufacturing data delivered a massive miss as omicron crippled supply chains and persistent labor shortages weighed on business activity. The Empire headline plunged to -0.7 in January, a miss of the expected gain of 25.0 and prior reading of 31.9. The Empire manufacturing index delivered its first negative reading since June 2020 as firms remain generally optimistic about the six-month outlook. The pace of prices paid and received decreased but are still substantial. The Empire survey suggests the omicron impact may have been greater-than-expected and this means the rest of the regional surveys may have significant downside surprises.
The NAHB Housing Market Index edged lower to 83, snapping a streak of four consecutive increases. Consumer demand is still strong, but the housing market is softening over inflation concerns that come along with surging borrowing costs, constant labor shortages, and higher material costs.
Goldman Sach’s shares got punished after a big miss with equities and compensation and expenses surged. Goldman saw both revenue and compensation increase by 33%, with a headcount increase of 8% in 2021. Equities trading revenue in the fourth quarter came in at $2.12 billion, much lower than $2.47 billion seen by analysts. The key takeaway from the big banks is that expenses are soaring and you can’t just assume they will do just fine as Treasury yields rise.
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