Decline in Stocks Accelerates on Interest Rate Fears

Soaring interest rates and an earnings miss from The Goldman Sachs Group, Inc. (GS) are sending U.S. equity markets tumbling. The Dow Jones Industrial Average (DJIA) is down 500 points, more than 1.5%, while the Nasdaq is losing almost 300 points, more than 2%.

The yield on the 10-year Treasury note is up to 1.84%, the highest level in two years, on concerns about Fed rate hikes to combat inflation. Interest rate-sensitive stocks—including those of technology, retail, and homebuilding companies—are falling. Shares of homebuilders are also being dragged lower by a decline in industry confidence this month.

Goldman Sachs is the worst-performing stock in the Dow and S&P 500, as its fourth quarter profit fell short of analysts’ estimates. Shares of other banks are dropping as well.

Shares of energy companies are rising, with oil futures up above $85 a barrel. Major cryptocurrencies are trading lower. The price of Bitcoin (BTC) is down about 1.5%. The dollar rose 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 troubled 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 gaming company by revenue, behind Tencent Holdings Limited (TCEHY) and Sony Group Corporation (SNE), according to a release.

The move adds Activision's popular games, including Call of Duty, Candy Crush, and Warcraft, to Microsoft's XBox console and its lineup of game offerings such as Minecraft and Doom. Microsoft CEO Satya Nadella called gaming the "most dynamic and exciting category in entertainment across all platforms today." He added that it will play a key role in the development of metaverse platforms.

Activision CEO Bobby Kotick would remain as head of the unit, reporting to Phil Spencer, CEO of Microsoft Gaming. Kotick has been under fire following accusations of sexual harassment and other misconduct at the company. Activision has reportedly fired or pushed out 37 employees and disciplined 44 others since July as part of a probe into the allegations.  

Shares of Activision Blizzard fallen 28% over the past year prior to the announcement. Microsoft shares are falling more than 1% today.

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Chart of the Day: Not Building Confidence

Inflation and lack of materials because of 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, snapping a streak of four consecutive monthly increases.

NAHB Chair Chuck Fowke said that higher prices for building supplies and the inability to get them are adding weeks to typical single-family construction times. He added that, in the past month, the aggregate cost of residential construction materials jumped almost 10%.

NAHB Chief Economist Robert Dietz noted that the drop in the index did not fully reflect the recent rise in mortgage interest rates. He warned that the higher borrowing costs, combined with increasing prices for materials and the worsening shortage of skilled workers, point to declines in housing affordability in 2022.

Fowke called on lawmakers in Washington to fix supply-chain disruptions, suggesting that a new softwood lumber agreement with Canada and a reduction in tariffs would be a good place to start.

Today in History: Ford Goes Public

Ford Motor Company (F) sold 10.2 million shares at $64.50 each on Jan. 18, 1956, raising $657.9 million, the largest initial public offering (IPO) in U.S. history 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 carmaker in 1945, he discovered that the company had some financial difficulties that needed to be addressed. He also wanted to make it a more disciplined organization with updated modern management systems.

Henry Ford II turned to family friend and adviser Sidney Weinberg for advice, and Weinberg put together a plan to sell shares to the public. The offering gave investors a 22% stake in Ford, although the Ford family retained 40% of shareholder voting rights.