Eq: Large Cap
(New York)
If you are looking for a sign of how bank earnings might be doing, look no further than Goldman Sachs. Goldman has struggled over the last several quarters as its trading business has failed to generate much revenue because of the broad lack of volatility over the last couple of years. However, in a divergence from the norm, this quarter is supposed to be very strong because of the volatility that has hit markets. One of the big x-factors in the earnings will be how Goldman’s proprietary investments perform.
FINSUM: If Goldman does well it will bode well for the rest of the banks, especially because other trading divisions will likely see a pick up too.
(New York)
Banks may be about to receive a huge gift from regulators in a move that shows just how much the deregulatory push of the Trump era might help the financial industry. The US Federal Reserve, which has significant oversight of the financial regulatory landscape has proposed changes which would loosen restrictions on banks’ balance sheets, allowing them to become more reliant on debt financing, thus having more leverage.
FINSUM: All the details of the new proposals are not clear yet, but this could be a significant boon for banks.
(New York)
Goldman Sachs seems very committed to expanding its business. Not only is the bank trying to make a bigger push into wealth management, but it also also reportedly downsizing its trading unit and putting more resources into its consumer finance business. It now offers consumer savings products, and last week, made an acquisition to grow revenue in its consumer business. The bank bought consumer finance app Clarity Money, whose CEO is Adam Dell, younger brother of Michael Dell. The app helps consumers lower their bills and suggest ways to help their budgets and then keeps a cut of the savings.
FINSUM: To us it is quite amazing how Goldman is proactively shedding its elite image to become more broadly consumer focused. We wonder how it will affect its business in the long run.
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(New York)
While the market has not been doing so well this year and there are many warning signs, there are some positives too. One great sign for markets is that earnings are very strong. First quarter earnings season looks to be a great one, but what will that do for the markets? This year is supposed to be the best for earnings growth since 2010, but that is exactly the problem—great earnings this year have been forecasted for a while because of the strong economy and tax cuts. That means all the risk appears to be to the downside rather than the upside.
FINSUM: We think this round of earnings have little margin for error as everyone is expecting them to be great.
(London)
The US stock market is looking increasingly volatile at the moment. Valuations are high, there are a number of fears, and worries over a trade war are causing daily swings. So what is an investor to do? One good option is to hedge US equity exposure with some international equities. Overseas stocks had a mixed first quarter but have been doing well recently. The reason why appears to be that they have underperformed the US for years, but are now finally catching up. While lending standards are tightening in the US, they are loosening elsewhere, causing a consumer spending boom. Further, higher US valuations make overseas stocks look “cheap”.
FINSUM: Having some overseas allocation seems like a good idea right now. The only real weakness we see, beyond Dollar risk, is that a trade war would negatively affect all countries, at least in the near term.
(New York)
Despite a tumultuous market over the last few weeks, stocks are at least maintaining their ground. This may give investors hope that prices can make a turnaround and the bull market can resume. However, beware history, as in previous periods of Fed tightening, valuation multiples have tended to decline, a fact that spells trouble for this market.
FINSUM: If higher rates mean lower multiples, then the 18-month outlook is not too strong for this market. However, the economy may not be as strong as many expect (look at the most recent jobs report), which could keep the Fed at bay.