Goldman Sachs (GS  ) shares dropped 7% following the company missing expectations on earnings, primarily due to higher than expected compensation and weaker than expected trading revenue. The bank did slightly top expectations on the top-line but issued cautious commentary.

Overall, the results are reflective of other trends ongoing in financial markets. We saw Wall Street banks outperform Main Street banks as the Federal Reserve's largesse led to incredible gains in equities and an explosion in IPOs while traditional banking underperformed. Thus, banks like Goldman and Morgan Stanley (MS  ) outperformed. Now, we are seeing the inverse with the Fed pivoting to removing liquidity from the financial system to combat inflation.

This is leading to a loss of momentum, while these banks continue to have to grapple with some challenges such as rising labor expenses to retain and attract talent. According to reports, compensation for investment bankers at Goldman was up between 40 and 50% which was the major drag on earnings.

Inside the Numbers

In Q4, Goldman reported $10.81 per share, falling short of expectations of $11.76 per share. This was a 13% decline from last year. Revenue also came in at $12.64 billion, slightly higher than analysts' expectations of $12.08 billion. Revenue increased 8% from last year's Q4.

The biggest culprit for the earnings miss was the 23% increase in operating expenses which wasn't a surprise given similar increases at rivals JPMorgan (JPM  ) and Citigroup (C  ). Despite this headwind, the company did manage to hit new records for full-year revenue and earnings.

Even with its recent drop in stock price, it's been an outperformer over the past year relative to the market and other banks. Further, the stock remains attractive with its forward P/E of 8 and 2.3% dividend yield which means the company is significantly cheaper than the broader market and yields more than the 10Y. This alone will make it attractive to investors especially if the market environment remains shaky.

The biggest growth source for the company was investment banking with a 45% increase in revenue to $3.8 billion. Global markets saw a 7% drop in revenue to $3.99 billion with equities revenue being the main source of weakness.

Going forward, investment banking is expected to remain strong, while trading revenue from equities and fixed-income should remain flat to down especially if the Fed hikes multiple times in 2022 as expected. Unlike Main Street-banks, Goldman Sachs is less able to benefit from this trend.