Displaying items by tag: Goldman Sachs
The market is falling again the day after the Labor Day holiday, and many tech stocks are nearing or in correction territory. It is a rough start to the week, and Goldman Sachs is not offering much hope. The firm published a research piece this weekend which was bullish on stocks overall, but said that another 10% correction may arrive soon. Goldman says that if investors start to doubt the trajectory of the recovery in the face of the super quick snapback in economic output that the market has priced, then stock prices will likely fall.
FINSUM: On the whole Goldman was pretty positive, but they also clearly allowed room for a short-term “shake out” in share prices. This correction we have on our hands might also lead to a change of market leadership, which would be an interesting shift.
Wondering where the market is headed? (so is everyone!) Well, Goldman Sachs put out a pretty unequivocal opinion about it today. Despite the market being at all-time highs when the country is in a recession and unemployment massive, the bank says that the S&P 500 will rise another 7% to close out the year. The only damper in the bank’s forecast is the election. Goldman says it is assuming a Democratic victory, and that could cause higher taxes that could dent the market a bit. GS also says Treasury yields will fall to 1.1% by the end of the year.
FINSUM: So we have two big competing feelings here. On the one hand, with the Fed so strongly in support of markets (and another fiscal stimulus likely), it seems like it could be smooth sailing. On the other hand, 51% of the entire market’s gain since the bottom in March has come from five stocks. On the whole, we think gains are more likely than losses.
It is a great time to be an investment bank. That fact became very clear last week when Goldman Sachs and Morgan Stanley earnings destroyed those of more traditional lenders like Bank of America, JP Morgan Chase, and Wells Fargo. Goldman, for instance, may be a great buy. It has much less main street lending exposure than regular banks, and has booming underwriting and trading businesses that are benefitting from low rates and market volatility. Some nice summary comments from an analyst at JMP Securities, saying “Goldman had a phenomenal quarter that allowed the firm to pad its legal reserves and conservatively position itself on loan losses … The bigger story is where the firm is going … Goldman is the biggest transformation story in finance, and the pandemic hasn’t derailed that”.
FINSUM: Firstly, these earnings came with all their employees working from home. So a 50% outperformance versus expectations with home-based traders. To us that is a sign of excellent management. More generally, their business mix—with a majority of institutional and growing, but not huge, consumer-facing revenue lines—seems ideal for the current environment. The stock is also priced below book value.
The market has been highly topsy turvy lately. With no real direction, stocks have been swinging back and forth based on economic and COVID news from day to day. With this kind of market looking likely for the near term, Goldman laid out some of its best picks for this kind of environment. Speaking about the market generally, the bank said “Consensus expects 9% upside to the typical stock over the next 12 months and volatility should remain elevated through the rest of the year, suggesting low risk-adjusted returns in the coming months.” Its stock picks included: Merck, Verizon, Philip Morris, General Motors, Comcast, Mondelez, and Coca-Cola.
FINSUM: A lot of old blue chips here whose earnings aren’t likely to be hurt too much by COVID.
Godman Sachs has generally been underperforming its competitors for years. However, under the leadership of CEO David Solomon the future is looking increasingly bright. On the one hand, the bank’s bet that trading would return as a huge driver of revenue and profit is starting to look smart (though it took about a decade), but on the other, its new focus on consumer and commercial banking products seems wise. Marcus, the brand under which its consumer-facing high yield savings accounts for consumers and businesses is marketed, has been growing its user base, with Goldman Sachs more generally has entered into many partnership deals in the consumer space. These include a new card with Apple, and a small business lending program in partnership with Amazon.
FINSUM: Goldman has been trying to shed its clubby image, and so far it seems to be making all the right moves. We are bullish on the future.