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**Daily Market Recap:**
• U.S. markets fell sharply on Tuesday, adding to losses for 2022 already. The tech-heavy Nasdaq remained the underperformer, down 2.6%, bringing total declines for the year to over -7.3%. This comes as the 10-year Treasury yield continues its climb, up to 1.87 levels, the highest since the start of the pandemic – adding further pressure to longer-duration growth sectors and bond-like areas including real estate. Meanwhile, energy continues to climb, with WTI crude oil up over 2.0%, to $85 levels. The energy sector remains a standout for the year, now up nearly 17% year-to-date.
• Fourth-quarter earnings reports continue to roll in. This morning, we heard from banking giant Goldman Sachs, which beat estimates on revenues but missed on earnings expectations. This follows a similar theme from big banks that reported last week – including J.P. Morgan and Citibank – which noted rising expenses weighing on earnings. While fourth-quarter 2021 earnings are still expected to remain robust – up nearly 20% year-over-year – earnings for 2022 are expected to moderate to about 9.0%. In our view, equity returns for the year are also likely to moderate while facing increasing bouts of volatility as well. We continue to see value and cyclical parts of the market holding up better, particularly in the first half, as the Fed begins its tightening cycle and as rate volatility remains an overhang.
• Meanwhile, this morning we saw big “merger Tuesday” news, as Microsoft announced the acquisition of video-game maker Activision for $95 per share, or about $68.7 billion, in an all-cash transaction. This acquisition price marks a 46% premium to Activision’s last closing price of $65.00. Notably, as the rate environment continues to rise, and as inflation diminishes the purchasing power of cash, we may continue to see cash6st3uich companies deploy cash – for both mergers and acquisitions, as well as for capital-expenditure spending to support growth. This productive use of cash may help offset the inflationary impact companies are facing broadly. This deal comes despite the regulatory scrutiny around large-cap technology acquisitions, which may also set a precedent for future technology merger-and-acquisition deals.

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