16 July 2020

Goldman Sachs Delivers Blowout Q2 on Trading Results

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News shaping
the markets today

     

What’s happening: Goldman Sachs Group reported its second-quarter results on Wednesday, beating estimates by a wide margin.

What happened: Goldman Sachs joined JPMorgan Chase and Citigroup in reporting a spike in revenue from trading shares and bonds.

The bank’s trading performance sent revenues to the second-highest level in its history and net profits way past expectations. Despite the blowout results, investors seemed tentative about Goldman Sachs. Although the stock rose as much as 5% earlier in the session, it gave up most of the gains by the end of the trading day.

How were the results: The brokerage and banking services company reported growth in both revenue and net income for the second quarter.

  • Revenues grew 41% to $13.30 billion, surpassing the consensus view of $8.77 billion.
  • Net income came in at $2.25 billion, or $6.26 per share, versus $2.20 billion, or $5.81 per share, in the same quarter last year. The figure beat the Street expectations of $3.90 per share.

Why it matters: Goldman Sachs high reliance on its investment banking and trading proved a major advantage in the second quarter, not only lifting its revenues, but also preventing the New York-based bank from recording losses amid the covid-19 crisis.

The company’s trading revenue more than doubled to $4.24 billion, while revenue from underwriting stocks and bonds doubled to $2.05 billion. Global markets said its global markets revenue surged 93% to $7.18 billion during the quarter.

On the other hand, Goldman Sachs had to set aside $945 million for potential legal and regulatory expenses. Moreover, CEO David Solomon acknowledged during the earnings call that boosting the investment banking giant’s wealth-management division had become more challenging due to the inability of financial advisors to personally meet new clients during the pandemic.

Goldman Sachs maintained its quarterly dividend at $1.25 per share. While Return on Equity stood at 11.1% in the second quarter, management projected an RoE of 13% over the next few years.

How shares responded: Shares of Goldman Sachs ended the regular trading session only 1.4% higher, after rising as much as 5% earlier in the session. The stock may have pared earlier gains amid an overall downturn in indices trading. The bank’s stock has gained over 21% over the past three months but is still down 6% year to date.

What to watch: With other major banks expected to witness a decline in trading revenue going ahead, investors will be keen to see whether Goldman Sachs can continue its strong performance in subsequent quarters. Investors will also closely monitor the bank’s attempts at diversify its businesses, which it has been trying to do over the past few years.

The Markets Today

     

European stocks will be in focus today, ahead of the ECB’s interest rate decision.

Context: European equities surged on Wednesday following positive news related to Moderna’s covid-19 vaccine candidate.

Details: Moderna announced that its covid-19 vaccine candidate had induced “anti–SARS-CoV-2 immune responses” in a larger group of participants, with the Phase III trials expected to commence in summer.

After falling 0.8% on Tuesday, the Stoxx Europe 600 index climbed 1.9% yesterday. Travel stocks, including Carnival, International Consolidated Airlines and Ryanair Holdings, rallied on hopes of a coronavirus vaccine resulting in a faster reopening of economies globally.

The French CAC 40 climbed to past a one-month high, with the index gaining more than 2%. The German DAX 30 index gained 1.8% to reach its highest level since February 24.

AstraZeneca’s stock gained 5% on speculations of positive news from the covid-19 vaccine that originated in the University of Oxford and is now being developed by the company.

Shares of Atlantia jumped 25% as the Italian government moved to resolve a dispute linked to the collapse of a bridge in Genoa that had been on since 2018.

What to watch: Investors await data on balance of trade data and the ECB’s interest rate decision. The Eurozone's trade surplus shrank to €2.9 billion in April, versus €15.5 billion in the same month last year. Meanwhile, the ECB in expected to keep its interest rates unchanged.

Markets will continue to assess the daily covid-19 numbers, with total cases exceeding 13.5 million globally.

Other Markets: US indices trading closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up 0.85%, 0.91% and 0.59%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

China’s foreign direct investment, UK’s claimant count, employment change and unemployment rate, France’s inflation rate, Italy’s balance of trade and construction output, Canada’s ADP employment as well as the US retail sales, Philadelphia Fed manufacturing index, initial jobless claims, retail sales, NAHB housing market index, business inventories and the EIA’s natural gas stockpiles.

 

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