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Here's Why Goldman Sachs Is Plunging Today

What happened

The stock market was having a rough start to the trading week on Tuesday, with all three major averages firmly in the red. However, investment banking giant Goldman Sachs (NYSE: GS) was a big underperformer. As of 10:45 a.m. ET, Goldman has fallen 8% for the day.

So what

As you might expect given the time of year, earnings are to blame. Goldman Sachs reported its fourth-quarter earnings on Tuesday morning, and it's fair to say that investors are disappointed.

Image source: Getty Images.

First of all, while Goldman beat top-line revenue expectations, it missed on bottom-line earnings, which is quite rare for the bank. In recent quarters, Goldman has handily surpassed even the most optimistic projections, so this certainly caught many investors by surprise.

One big culprit was rising expenses, which has been a major trend throughout the industry. In fact, Goldman's operating expenses soared by 23% year over year and were $500 million higher than analysts had been looking for, with higher pay and benefits one of the main reasons cited by management.

There were some positive components of the report, however. Investment banking revenue was one big bright spot, as revenue skyrocketed 45% higher year over year and beat expectations by a wide margin. Plus, Goldman's revenue and earnings for the full year 2021 were all-time records for the bank. However, it wasn't nearly enough to overcome the sting of the earnings miss.

Now what

It's important to take any single-quarter earnings miss with a big grain of salt, but there are some things investors should definitely keep an eye on. Specifically, while Goldman faces the same inflationary pressures as other banks, especially when it comes to wages, it isn't likely to benefit from rising interest rates nearly as much as other big banks with larger lending operations.

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Matthew Frankel, CFP® owns Goldman Sachs. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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