Thursday, October 15, 2020

Goldman Sachs Races Past Bank of America With Q3 Print

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News shaping
the markets today

     

What’s happening: Goldman Sachs reported third-quarter results that crushed expectations, while Bank of America disappointed investors with its sales figures.

What happened: The latest results from the financial giants came a day after JPMorgan Chase and Citigroup reported stronger-than-expected quarterly earnings.

Goldman Sachs’s upbeat results amid the pandemic underscore the bank’s strengths and make it stand apart from banks like Bank of America, the results of which were impacted by lower rates.

How were the results: Goldman Sachs reported sales and earnings growth for the latest quarter, while Bank of America recorded a decline in both metrics.

  • Goldman Sachs’s revenues came in at $10.78 billion, while earnings jumped to $9.68 per share, in the third quarter. This compares favourably with the consensus estimates of $9.19 billion in revenues and earnings of $5.37 per share.
  • Meanwhile, Bank of America reported an 11% decline in revenues to $20.30 billion, missing expectations of $20.61 billion. Earnings fell to 51 cents per share, although the figure exceeded the consensus view of 49 cents per share.

Why it matters: Trading desks on the Wall Street are witnessing another strong quarter amid the pandemic, with the upcoming US Presidential election resulting in higher volatility in the markets.

Goldman Sachs and Bank of America joined JPMorgan and Citigroup to report an increase in trading revenues.

Goldman Sachs’s fixed income trading revenue surged 49% to $2.5 billion during the quarter, while equity trading revenue rose 10% to $2.05 billion. The latest surge fell short, however, from the blockbuster jump in the second quarter.

The latest results from Goldman Sachs validate the company’s strategy of expanding into retail banking, while also increasing its focus on wealth management.

Bank of America, on the other hand, reported a decline in quarterly profits despite keeping lower credit reserves in the latest quarter. The bank set aside $1.4 billion for potential loan losses, versus $5.1 billion in the June quarter.

The lower interest rate environment resulted in Bank of America missing revenue estimates for the third quarter, with core consumer banking revenue shrinking 17% to $8 billion.

While other major banks reported a much stronger surge in trading revenue, the growth recorded by Bank of America’s trading arm disappointed investors. Fixed income trading revenue grew by only 3% to $2.1 billion, while equity trading rose 6% to $1.2 billion.

How shares responded: Shares of Goldman Sachs rose 0.2% to close at $211.23 on Wednesday, while Bank of America’s stock declined 5.3% to $23.62 following the release of the quarterly results. Shares of Goldman Sachs are down around 1% in the past three months, with Bank of America losing over 2% in the same period.

What to watch: Market volatility is expected to increase in the run-up to the US elections. Investors will keep an eye on the trading revenue at major banks and also expect improvements in the overall performance in the banking sector as the economy recovers. News around the launch and manufacture of covid-19 vaccines will also be in focus.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of the ADP jobs data from the country.

Context: The Canadian dollar edged lower versus the greenback yesterday after hitting a five-week high on Tuesday, as fading hopes of fresh stimulus from the US weighed on overall market sentiment.

Details: Traders appeared to take profits after the loonie climbed to its highest level in five weeks yesterday.

Crude oil prices climbed more than 2% to $41.04 per barrel on Wednesday, which typically generates support for the loonie, with crude being one of Canada’s major exports. However, yesterday’s rise could not control profit-taking by investors.

Meanwhile, Wall Street stocks moved lower in the previous session following comments from US Treasury Secretary Steven Mnuchin indicating the low probability of a stimulus agreement being reached before the Presidential elections.

The CAD/USD traded slightly lower to 1.3152 on Wednesday. The loonie had spiked to its strongest intraday level since September 8 of $1.3095 in the previous session.

What to watch: Markets await the ADP employment report and new motor vehicle sales data from Canada. Private businesses in Canada lost 205,400 jobs in August, after shedding 523,000 jobs in the previous month.

Investors will also look out for the speech from Bank of Canada’s Deputy Governor Timothy Lane.

Other Markets: European indices trading closed mostly lower on Wednesday, with the FTSE 100 and French 40 down by 0.58% and 0.12%, respectively, while the German DAX 30 gained 0.07%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Italy’s industrial new orders and industrial sales, Saudi Arabia’s inflation rate, Turkey’s gross foreign exchange reserves, Brazil’s IBC-Br index of economic activity, Russia’s industrial production, European Council meeting as well as the US import prices, export prices, New York Empire State manufacturing index, initial jobless claims, Philadelphia Fed manufacturing index, EIA’s natural gas stockpiles and crude oil stocks.