15 April 2020

Goldman Sachs Shares Spike Amid COVID-19 Crisis

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What’s happening: Goldman Sachs is scheduled to report its first-quarter results before the opening bell on Wednesday, April 15.

What happened: With JPMorgan and Wells Fargo starting the earnings season with dismal quarterly profits, Goldman Sachs is expected to report a strong decline in its earnings due to the coronavirus pandemic.

Despite this, investor sentiment turned positive ahead of the results and shares of Goldman Sachs have surged over the past five trading sessions. There are reasons to believe that the banking giant may benefit from the COVID-19 crisis.

With quarterly estimates revised down over the last three months, investors are hopeful of Goldman Sachs modestly beating these.

  • The consensus revenue estimate stands at $7.92 billion, representing a 10.1% year-over-year decline.
  • The estimate for earnings is $3.36 per share, a massive 41.2% decline from the same quarter in the previous year.

Why it matters: Goldman Sachs’ first-quarter results and annual guidance are likely to reflect the impact of the current economic crisis. However, the company has a very strong balance sheet, which will provide some cushion.

Moreover, high trading volumes are expected to ease some of the pain for the banking giant. Given the strong volatility in financial markets in March, all market activities, including profit taking, hedging or buying the dip, have increased significantly. Last month’s volatility was the highest experienced since 2008, which suggests a meaningful spike in trading activity, and this will support the bank’s earnings.

Goldman Sachs’ earnings in the fourth quarter were hurt by a litigation charge, but the bank still exceeded revenue estimates. The investment banking business slowed last quarter and is expected to continue the downward trajectory in the first quarter due to the massive slowdown in IPO (initial public offerings) and M&A (merger and acquisition) activities during the crisis

Goldman Sachs is working on reducing costs and improving overall efficiency, while making investments in new opportunities.

How the shares have performed so far: Shares of Goldman Sachs have gained around 13% in the last five trading days. The stock has risen 1% over the past month, amid the broader market downturn. Goldman Sachs has performed significantly better than its peers during the current crisis, with the bank’s stock dropping around 22% year-to-date, versus Bank of America’s 33% decline.

What to watch: Goldman Sachs is under immense pressure to beat estimates this quarter. Investors will be waiting for the company to disclose the impact on its business due to coronavirus. With other companies withdrawing or not issuing forecasts, the markets are keen to know whether the bank issues its guidance for the year.

The Markets Today

     

Investors will be watching European stocks today, ahead of inflation reports from various nations of the region.

Context: European stocks closed mostly higher on Tuesday, after a long weekend. Market sentiment was lifted by a slowdown in coronavirus cases. Investors also cheered news of various countries considering reopening plans.

Details: Italy and Spain, the two nations most affected by coronavirus, are now planning to lift some restrictions with the number of new daily cases and deaths declining over the past few days. Spanish authorities have allowed some manufacturing and construction work to restart, while Italy has also allowed the reopening of some businesses.

Even as the IMF warned of the global economy facing the most severe financial crisis since the 1930 Great Depression, investors seem to be taking one day at a time and focusing on whatever positive news there is in this challenging scenario.

The pan-European Stoxx 600 index rose 0.6% on Tuesday, with most sectors closing in positive territory. The German 30 rose 1.25%, while French 40 climbed 0.4%. The FTSE 100 bucked the trend and slipped 0.88%.

Shares of German lighting company Osram jumped around 12% on Tuesday, while British cinema company Cineworld saw its shares decline over 18%.

What to watch: Investors will be keeping an eye on the coronavirus numbers. The number of positive COVID-19 cases in Italy has surpassed 162,480 with around 21,060 deaths. Spain has so far confirmed more than 174,000 cases with 18,250 fatalities.

Investors are hoping for further news of economies around the world reopening as soon as possible so that countries can begin rebuilding and getting back on the growth track. Markets are also awaiting inflation reports from European nations, including France, Spain and Italy. Consumer prices in Italy are expected to rise 0.1% in March, while France is expected to report a decline in its inflation rate to 0.6%. Spain’s annual inflation rate is projected to decline to 0.1% in March, versus 0.7% in the prior month.

Other Markets: US indices closed higher on Tuesday, with the Dow, S&P 500 and Nasdaq 100 rising 2.39%, 3.06% and 3.95%, respectively.

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What else to watch today

     

India’s wholesale price index change and balance of trade, Saudi Arabia’s inflation rate, Canada’s new motor vehicle sales, Bank of Canada’s interest rate decision, Russia’s industrial production, China’s foreign direct investment, Argentina’s inflation rate as well as the US MBA mortgage applications, retail sales, New York empire state manufacturing index, industrial production, NAHB housing market index, business inventories, crude oil stocks change and Fed Beige Book report.

 

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