Stock decline accelerates on interest rate fears

Soaring interest rates and The Goldman Sachs Group, Inc. (GS) shortfall are sending US stock markets tumbling. The Dow Jones Industrial Average (DJIA) is down 500 points, or more than 1.5%, while the Nasdaq is down almost 300 points, or more than 2%.

Key points to remember

  • Soaring interest rates and Goldman Sachs’ shortfall are sending U.S. stock markets tumbling as the Dow Jones faces one of its worst days of 2022.
  • Activision Blizzard shares are soaring after Microsoft agreed to buy the struggling video game maker for $95 per share in cash, or $68.7 billion.
  • The yield on the 10-year Treasury note rose to 1.84%, the highest level in two years, on concerns over Fed rate hikes to fight inflation. Oil and the dollar rose.

The yield on the 10-year Treasury note rose to 1.84%, the highest level in two years, on concerns over Fed rate hikes to fight inflation. Interest-rate-sensitive stocks, including those of technology, retail and homebuilding companies, are down. Homebuilder stocks are also dragged down by a decline in industry confidence this month.

Goldman Sachs is the worst-performing stock in the Dow Jones and S&P 500, with its fourth-quarter earnings falling short of analysts’ estimates. Shares of other banks are also falling.

Shares of energy companies rise, with oil futures rising above $85 a barrel. Major cryptocurrencies are trading lower. Bitcoin (BTC) price is down about 1.5%. The dollar appreciated against the euro.

Microsoft’s $68.7 billion Activision blockbuster

Activision Blizzard, Inc. (ATVI) shares are soaring after Microsoft Corporation (MSFT) agreed to buy the struggling video game maker. Microsoft agreed to pay $95 per share in cash, a 48% premium to Activision’s last closing price. The deal makes Microsoft the world’s third-largest games company by revenue, behind Tencent Holdings Limited (TCEHY) and Sony Group Corporation (SNE), according to a statement.

The move adds popular Activision games, including Call of Duty, candy Crush, and Warcraft, to Microsoft’s XBox console and its range of game offerings such as Minecraft and Loss. Microsoft CEO Satya Nadella called gaming “the fastest growing and most exciting entertainment category on any platform today.” He added that he will play a key role in the development of metaverse platforms.

Activision CEO Bobby Kotick would remain at the helm of the unit, reporting to Phil Spencer, CEO of Microsoft Gaming. Kotick has come under fire following accusations of sexual harassment and other corporate misconduct. Activision has reportedly fired or expelled 37 employees and disciplined 44 others since July as part of an investigation into the allegations.

Activision Blizzard shares fell 28% in the past year before the announcement. Microsoft shares are down more than 1% today.

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Chart of the Day: Not Building Confidence

Inflation and lack of materials due to supply chain issues led to a drop in homebuilder confidence in January. The National Association of Homebuilders (NAHB)/Wells Fargo index fell to 83 from 84 in December, triggering a streak of four consecutive monthly increases.

National Association of Home Builders; Wells Fargo

NAHB President Chuck Fowke said higher prices for building materials and the inability to obtain them are adding weeks to typical construction times for single-family homes. He added that over the past month, the overall cost of residential building materials has jumped nearly 10%.

NAHB Chief Economist Robert Dietz noted that the index’s decline did not fully reflect the recent rise in mortgage interest rates. He warned that higher borrowing costs, combined with rising material prices and a worsening shortage of skilled workers, point to declining housing affordability in 2022.

Fowke called on Washington lawmakers to address supply chain disruptions, suggesting a new softwood lumber deal with Canada and lower tariffs would be a good start.

Today in history: Ford goes public

Ford Motor Company (F) sold 10.2 million shares at $64.50 each on January 18, 1956, raising $657.9 million, the largest initial public offering (IPO) in US history. United at that time.

Ford had remained private since its founding in 1903 by Henry Ford. However, when his grandson, Henry Ford II, took control of the automaker in 1945, he discovered the company was in financial trouble that needed to be resolved. He also wanted to make it a more disciplined organization with modern and updated management systems.

Henry Ford II turned to family friend and adviser Sidney Weinberg for advice, and Weinberg hatched a plan to sell stock to the public. The offer gave investors a 22% stake in Ford, although the Ford family retained 40% of the voting rights of shareholders.

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