Bitcoin has gained massive adoption over the past year, with traditional banks and institutional investors entering the market in droves. However, there is still an ongoing debate about Bitcoin’s position as an asset class. This has caused a difference in opinion amongst Goldman Sachs analysts.
Goldman Sachs analysts can’t decide on Bitcoin’s position
Goldman Sachs has been changing its views regarding Bitcoin for a while now. Some of the bank analysts don’t see it as an investable asset class, while the others do. This latest development comes despite the bank expanding its presence in the cryptocurrency market.
Wall Street investment bank Goldman Sachs published a report titled “Digital Assets: Beauty Is Not in the Eye of the Beholder.” In the report, the bank analysts said the leading cryptocurrency is not a long-term store of value or an investable asset class. The views from this report contradict Goldman Sachs’ May 21 report titled “Crypto: A New Asset Class?” In this report, Matthew McDermot, global head of digital assets at Goldman Sachs, classified Bitcoin as an investable asset class after its performance over the years.
The investment bank has changed its decisions on Bitcoin numerous times over the past few years. Last year, the Bitcoin published a presentation detailing reasons why it thinks Bitcoin is not an investable asset class.
In this latest report, the Goldman Sachs analysts said they wanted to play it safe regarding Bitcoin. They didn’t want to attach any positive or negative sentiment to the cryptocurrency. The report said, “We have refrained from repeating the positive and negative hype that surrounds this ecosystem because we do not want clients to be seesawed, even swayed by a cacophony of assertions, many of them unsubstantiated.”
Bitcoin’s price has historically gone up
Despite the argument regarding Bitcoin and its status as an asset class, its price has gone up since it was first launched in 2009. The surge in Bitcoin’s value comes despite intermittent bear markets such as the one experienced in 2018 and 2019.
At the time of this report, Bitcoin’s (BTC) price is down by 3.6% over the past 24 hours, and it is trading below the $40k mark again. Bitcoin has struggled to surpass the $40k mark in recent weeks, and it is still nearly 40% down from its all-time high price of $65,000.
Banks will be able to hold Bitcoin or other cryptocurrencies. However, the banks would be required to comply with tough capital requirements before they can do so.
Banks will face tough capital requirements to hold Bitcoin
The Basel Committee on Banking Supervision revealed yesterday that traditional banks would be allowed to hold Bitcoin or other cryptocurrencies. However, they will have to comply with stringent capital requirements due to the risk nature of cryptocurrencies.
In a statement yesterday, the committee stated that the banking sector is facing increasing risks from cryptocurrencies due to the potential of money laundering, reputational challenges and the massive price volatilities of the assets. The committee complained that these vices could lead to defaults, hence, the need to institute those regulations.
The committee recommended that a 1,250% risk weight be attached to a bank’s exposure to Bitcoin or other cryptocurrency assets. As such, banks would be required to hold a dollar in capital for each dollar worth of BTC they hold. The committee also suggested the same standard for other volatile digital assets. The capital is required to fully absorb a full write-off of their exposure to cryptocurrencies without exposing depositors and the bank investors to a loss.
Stablecoins are not covered in the capital requirement
The committee exempted stablecoins because the digital currencies are tied to real-world currencies like the US Dollar or Euros. Per the report, the proposal is now open to public comment before it is implemented. The committee comprised of the European Central Bank, the US Federal Reserve and other leading central banks added that the policies would undergo several changes as the cryptocurrency market continues to evolve.
The crypto market has gained adoption from various traditional banks and financial institutions over the past year. Currently, some leading banks such as Goldman Sachs and Morgan Stanley have all begun offering crypto-related services to their clients.
Bitcoin’s price continues to underperform, and it is trading at $37k per coin at the time of this report. Despite the numerous adoption and regulatory news coming into the space, Bitcoin’s price has failed to embark on a rally to surpass the $40k mark.
The group, called J.P. Morgan Private Capital, recruited Christopher Dawe from Goldman Sachs Group Inc to lead its technology and consumer growth equity business, and Osei Van Horne from Wells Fargo & Co to lead its investments across industries, particularly those with an ESG focus.
The group’s head is Brian Carlin, who used to be the head of J.P. Morgan’s wealth management solutions. Rick Smith, who previously headed private investments at JPMorgan Chase, a separate division of the bank, will serve as chairman of the group. Meg McClellan will lead private debt.
The group will report to Anton Pil, the global head of alternatives.
(Reporting by Sohini Podder in Bengaluru, additional reporting by Elizabeth Dilts Marshall in New York; Editing by Amy Caren Daniel)
Goldman Sachs Stock Moves Higher After Strong Quarterly Report
Shares of Goldman Sachs gained strong upside momentum after the company released its quarterly report. The company reported revenue of $17.7 billion and GAAP earnings of $18.60 per share, easily beating analyst estimates on both earnings and revenue. Goldman Sachs declared a quarterly dividend of $1.25 per share, in line with the previous dividend.
The company noted that its investment banking segment generated record quarterly net revenues of $3.77 billion, and the firm retained its first position in worlwide announced and completed mergers and acquisitions. Other business segments also performed well.
The unprecendented support provided by the world central banks boosted capital markets and deal activity which was bullish for Goldman Sachs. Reports from other financial companies that were published today were also strong so it’s an industry-wide trend.
What’s Next For Goldman Sachs?
Shares of Goldman Sachs reached all-time high levels back in March 2021 at $356.85. At this point, it looks that the stock has good chances to get to the test of this level.
Analysts expect that Goldman Sachs will report earnings of $33.06 per share in 2021 and $33.71 per share in 2022, so the stock is trading at just 10 forward P/E which is cheap in today’s market environment. It should be noted that earnings estimates have been steadily moving higher in recent months, and analysts will likely increase them after the strong quarterly report.
The recent pullback in Treasury yields has put some pressure on financial stocks, but the solid quarterly performance should help Goldman Sachs gain more upside momentum. In addition, the risk of higher inflation (and higher yields) is real, which is bullish for the financial sector. Meanwhile, shares of Goldman Sachs look ready to test the recent highs as the company’s quarterly performance was strong while its valuation remains attractive.
JPMORGAN CHASE: The leading global financial services firm with assets over $2 trillion is expected to report its first-quarter earnings of $2.06 per share, which represents year-over-year growth of over 290% from $0.78 per share seen in the same quarter a year ago. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 6%.
The New York City-based investment bank would post revenue growth of about 6% to around $29.8 billion.
“We expect JPMorgan to likely beat the consensus estimates for revenues and earnings. The bank has outperformed the consensus estimates in each of the last three quarters, primarily driven by a jump in the Corporate & Investment Banking segment led by higher sales & trading and investment banking revenues. However, the above growth was partially offset by some weakness in the Consumer & Community Banking segment due to the lower interest rates environment. We expect the sales & trading and investment banking revenues to drive the first-quarter FY2021 results as well,” noted analysts at TREFIS.
“Further, recovery in bond yields over the recent months is likely to benefit core-banking revenues. Additionally, JPM released $2.9 billion from its loan-loss-reserve in the fourth quarter, suggesting some improvement in the perceived loan default risk. We expect the same momentum to continue in the first quarter. Our forecast indicates that JPMorgan’s valuation is around $143 per share, which is 7% lower than the current market price of around $154.”
GOLDMAN SACHS: The leading global investment bank is expected to report its first-quarter earnings of $10.10 per share, which represents year-over-year growth of about 225% from $3.11 per share seen in the same quarter a year ago. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of nearly 50%.
The New York City-based bank would post revenue growth of over 31% to around $11.5 billion.
“We expect Goldman Sachs to outperform the consensus estimates for revenues and earnings. The bank has reported better than expected results in each of the last three quarters, mainly due to its strength in sales & trading and the investment banking space,” noted equity analysts at TREFIS.
“Despite the economic slowdown and the COVID-19 crisis, the company reported strong revenue growth in 2020 driven by a 43% y-o-y jump in global markets division (sales & trading) and a 24% rise in the investment banking unit. We expect the same trend to drive the first-quarter FY2021 results as well. Our forecast indicates that Goldman Sachs’ valuation is around $366 per share, which is 12% more than the current market price of around $327.”
IN THE SPOTLIGHT: PEPSICO, BANK OF AMERICA, CITIGROUP, BLACKROCK, DELTA AIR LINES
PEPSICO: The company which holds approximately a 32% share of the U.S. soft drink industry is expected to report its first-quarter earnings of $1.12 per share, which represents year-over-year growth of about 4% from $1.07 per share seen in the same quarter a year ago. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of nearly 6%.
The U.S. multinational food, snack, and beverage corporation would post revenue growth of over 5% to about $14.6 billion.
“Based on the 2020 performance and evolving business conditions, the company provided guidance for 2021. It expects organic revenue growth in the mid-single digits, with core constant currency EPS growth in high-single digits. It expects a core effective tax rate of 21%. Additionally, the company expects currency tailwinds to aid its revenues and core EPS by 1 percentage point in 2021, based on the current rates,” noted analysts at ZACKS Research.
“Further, it remains committed to rewarding its shareholders through dividends and share buybacks. It anticipates total cash returns to shareholders of $5.9 million, including $5.8 million of cash dividends and $100 million of share repurchases. The company recently completed its share-repurchase authorization and expects no more share repurchases through the rest of 2021.”
BANK OF AMERICA: The Charlotte, North Carolina-based investment bank is expected to report its first-quarter earnings of $0.66 per share, which represents year-over-year growth of over 60% from $0.40 per share seen in the same quarter a year ago. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 9%.
However, the United States’ second-largest bank would see a revenue decline of more than 4% to around $21.7 billion.
CITIGROUP: The New York City-based investment bank is expected to report its first-quarter earnings of $2.52 per share, which represents year-over-year growth of 140% from $1.05 per share seen in the same quarter a year ago. But Citigroup’s revenue would decline about 12% to around $18.3 billion.
BLACKROCK: The world’s largest asset manager with $8.67 trillion in assets under management is expected to report its first-quarter earnings of $7.87 per share, which represents year-over-year growth of over 19% from $6.60 per share seen in the same quarter a year ago. The New York City-based bank would post revenue growth of about 16% to around $4.3 billion.
DELTA AIR LINES: The Airline company which provides scheduled air transportation for passengers and cargo throughout the United States and across the world is expected to report a loss for the fifth consecutive time of $2.84 in the first quarter of 2021 as the airlines continue to be negatively impacted by the ongoing COVID-19 pandemic and travel restrictions. That would represent a year-over-year decline of over 450% from -$0.51 per share seen in the same quarter a year ago.
The Atlanta-based airline’s revenue would decline more than 50% to around $3.9 billion.
If her appointment is approved by shareholders, Jessica Uhl will be the fifth woman director on Goldman’s board and its only member to come from the fossil fuel industry.
The bank has backed away from fossil fuel development in recent years.
In 2019, it said it would no longer finance certain drilling and coal activities and set a target of making $750 billion in loans, underwriting, advisory services and investments in projects that fight climate change or help financially disadvantaged people.
Shell, where Uhl has worked since 2004, recently vowed to eliminate net carbon emissions by 2050, as it prepares to expand its renewables and low-carbon business in the face of growing investor pressure on the oil and gas sector to battle climate change.
Goldman’s asset management arm has pushed companies in its investment portfolio to include at least one woman director since 2019, and its investment bank has required companies that it takes public have at least one diverse board member since 2020.
The group, which will hold its annual shareholder meeting April 29, is expected to face its own investor scrutiny on adherence to environmental, social and governance goals, and headlines about its chief executive’s personal travel and social activities during the quarantine.
“We are pleased to have a candidate of Jessica’s caliber who will enhance the diversity of skills and experience represented on our board,” Goldman CEO David Solomon said in a statement.
“We believe she is well-positioned to provide advice and insight across a broad spectrum of topics, from strategic development to the management of climate risk.”
(This story corrects the date of bank’s shareholder meeting to April 29 (not April 30) in seventh paragraph)
(Reporting by Elizabeth Dilts Marshall; Editing by Jan Harvey)
“Shares of Goldman have underperformed the industry in the past three months. Earnings estimate have been revised upward prior to the fourth-quarter earnings release. The company has a decent earnings surprise history, outpacing the Zacks Consensus Estimate in three of the trailing four quarters and missed in one. Goldman’s solid position in worldwide announced and completed M&As will keep strengthening the business,” noted analysts at ZACKS Research.
“Also, business diversification helps Goldman sustain growth. The company’s cost management efforts continue to support bottom-line growth. Moreover, with strong liquidity, Goldman carries a low credit risk in case of any economic downturn. Though, legal issues, high dependence on overseas revenues and volatile client-activity might impede top-line growth, steady capital deployment activities keep us encouraged.”
Goldman Sachs shares closed 2.23% lower at $301.01 on Friday; however, the stock rose about 15% in 2020.
Goldman Sachs Stock Price Forecast
Eleven analysts who offered stock ratings for Goldman Sachs in the last three months forecast the average price in 12 months at $312.00 with a high forecast of $407.00 and a low forecast of $225.00.
The average price target represents a 3.65% increase from the last price of $301.01. From those 11 analysts, eight rated “Buy”, two rated “Hold” and one rated “Sell”, according to Tipranks.
Morgan Stanley gave a base target price of $291 with a high of $347 under a bull scenario and $160 under the worst-case scenario. The firm currently has an “Underweight” rating on the financial services company’s stock.
Several other analysts have also recently commented on the stock. BofA global research raised the stock price forecast to $345 from $270. BMO upped the target price to $306 from $289. Citigroup increased the price objective to $357 from $325. Piper Sandler raised the target price to $325 from $270. Barclays increased the price objective to $362 from $270.
“As market volatility and the urgency around capital raising activity (both equity and debt) subside in 2021, we expect total revenues decline 11% y/y from a strong 2020. We are valuing the group on normalized 2023 EPS. While we still see 15%+ upside to Goldman Sachs based on this methodology, we see even more upside elsewhere in the group, particularly in consumer finance stocks which have been under more pressure. This drives our Underweight rating,” said Betsy Graseck, equity analyst at Morgan Stanley.
“Over time, we expect Goldman Sachs can drive some multiple expansion as management executes on its multi-year strategic shift towards higher recurring revenues.”
Logitech International S.A., a Swiss-American manufacturer of computer peripherals and software, is expected to report a profit of $1.08 in the fiscal third quarter, which represents year-over-year growth of about 29% from the same quarter last year when the company reported 84 cents per share.
The Lausanne-based company’s revenue to grow over 35% year-over-year to $1.23 billion from $902.69 million in the same period last year.
“We are bullish into Logitech‘s F3Q21 earnings report next week as our December quarter checks point to a better than the expected market environment, most notably for PC peripherals. We’d be buyers into the print and raise our PT to $113 (from $106) to account for recent peer multiple expansion,” noted Erik Woodring, equity analyst at Morgan Stanley.
Tuesday (January 19)
IN THE SPOTLIGHT: GOLDMAN SACHS, NETFLIX
GOLDMAN SACHS: New York-based leading global investment bank is expected to report a profit of $7.33 in the fourth quarter, which represents year-over-year growth of about 56% from the same quarter last year when the company reported $4.69 per share. The bank’s revenue is expected to dip 4.9% from the year-ago quarter to $9.47 billion.
“As market volatility and the urgency around capital raising activity (both equity and debt) subside in 2021, we expect total revenues decline 11% y/y from a strong 2020. We are valuing the group on normalized 2023 EPS. While we still see 15%+ upside to Goldman Sachs (GS) based on this methodology, we see even more upside elsewhere in the group, particularly in consumer finance stocks which have been under more pressure,” said Betsy Graseck, equity analyst at Morgan Stanley.
“This drives our Underweight rating. Over time, we expect GS can drive some multiple expansion as management executes on its multi-year strategic shift towards higher recurring revenues.”
NETFLIX: California-based global internet entertainment service company is expected to report a profit of $1.35 in the fourth quarter, which represents year-over-year growth of about 4% from the same quarter last year when the company reported $1.30 per share. The streaming video pioneer’s revenue is expected to surge over 20% from the year-ago quarter to $6.60 billion.
“We expect paid net adds to come in the above guide, helped by ongoing shutdowns & seasonal strength. Our view is supported by our positive proprietary 4Q20 survey data, which implies rising pricing power into year-end. We tweaked estimate’s & introduced ’21 quarters; in turn, our DCF-based price target rises to $650 from $625 prior; reiterate ‘Outperform’ rating,” said John Blackledge, equity analyst at Cowen and company.
“NetFlix (NFLX) shares were +67% in ’20 alongside a pandemic surge, following massive sub beats in 1Q / 2Q respectively and 28.1MM total paid net adds in 1Q-3Q ’20, up 47% y/y. With consumers staying home amid colder weather & limited social activities, we expect Netflix engagement to remain high; meanwhile, to the extent, there is any NT pressure on UCAN paid subs from the 4Q US price increase, we would consider this a buying opportunity for NFLX shares as the co. grows the value prop alongside rising ARPU.”
The largest insurance company by Net Premiums is witnessing a slowdown in its international business as increased joblessness due to the COVID-19 pandemic has dented demand for commercial membership.
“UnitedHealth Group is the number one Medicare Advantage player with 28% market share, the number two Medicare PDP player with 20% market share, and the number two commercial player with 15% market share. United’s model is enhanced via vertical integration with its OptumRx PBM platform, which is one of the three largest PBMs in the country,” wrote Ricky Goldwasser, equity analyst at Morgan Stanley.
“With a large lead in the breadth of services offerings and considerable exposure to government businesses, UnitedHealth is well-positioned for any potential changes in the US healthcare system. A strong balance sheet and continued solid cash generation give flexibility for continued M&A.”
“For 2020, IBM refrained from providing any guidance, citing business uncertainty. Nevertheless, management stated that the fourth quarter is a seasonally strong quarter. The company is witnessing robust pipelines across hybrid cloud and data platform, AI solutions, in Cognitive Apps business driven by strength in Cloud Paks and Security, cloud-based transformation services in GBS segment, and App modernization offerings,” noted analysts at ZACKS Research.
“Also, management is banking on advancement in Red Hat “actual backlog growth.” Moreover, gains from the rapid uptake of IBM z15 is anticipated to be a tailwind. The company also anticipates to end 2020 with reduced debt levels.”
Shares in Goldman Sachs Group, Inc. (GS) gained over 6% Monday, leading banking stocks higher after the Federal Reserve gave bank buybacks the greenlight from as early as next month after major players in the group passed a range of specifically designed coronavirus stress tests. The surprise decision reverses the central bank’s halt on buybacks that has been in place since June to ensure lenders had sufficient balance sheet strength to survive the pandemic ravaged economy.
Under the Fed’s new rule, banks’ total capital distribution, which includes buybacks and dividends, will be limited to 100% of average quarterly net income over the four most recent quarters. After the announcement, Goldman said it plans to recommence its share repurchase program in the first quarter of 2021. This year, the New York-based investment bank has bought back $1.93 billion of its shares, compared to buying back $5.34 billion in 2019.
Through Monday’s close, Goldman Sachs stock has a market capitalization of $88.42 billion, offers a 2.1% dividend yield, and trades 15.06% higher over the last month. Year to date (YTD), the shares have added around 12%. From a valuation standpoint, the stock trades at just over 10 times projected earnings, roughly in-line with its five-year average multiple.
Wall Street View
Morgan Stanley analyst Betsy Graseck believes Goldman has the most to gain from the Fed’s buyback reversal decision due to the substantial revenue it has generated from trading in the trailing four quarters.
Even before yesterday’s announcement, other sell-side firms on the Street were mostly bullish about the bank’s prospects. It receives 16 ‘Buy’ ratings, 9 ‘Hold’ ratings, and just 1 ‘Sell’ recommendation. Price targets range from as high as $407 to as low as $200. Monday’s $256.98 close sits 6.5% below Wall Street’s 12-month median price target of $273.75.
Technical Outlook and Trading Tactics
Goldman shares broke out to a multiyear high on above-average volume Monday, which may lead to further momentum-based buying in subsequent trading sessions. Furthermore, the bullish move received confirmation from a cross of the moving average convergence divergence (MACD) indicator back above its signal line.
Active traders could play the breakout by using a trailing bar stop to let profits run. To do this, remain in the position until the price closes beneath the current day’s low or the previous day’s low, whichever is lower. For example, place an initial stop-loss order under Friday’s low at $240.56.
Goldman Sachs Group Inc, an American multinational investment bank, reported a better-than-expected profit and revenue in the third quarter as businesses recovered from the COVID-19 pandemic after a sharp decrease in the second quarter, sending its shares up about 3% in pre-market trading on Wednesday.
The Wall Street trading powerhouse reported that its net revenue jumped 30% to $10.78 billion, beating market estimates of $9.5 billion, and net earnings of $3.62 billion for the third quarter which ended on Sept 30. Net revenues were $32.82 billion and net earnings were $5.20 billion for the first nine months of 2020, the company said.
Diluted earnings per common share (EPS) was $9.68 for the third quarter of 2020, doubled than the market consensus of $5.57 per share, compared with $4.79 for the third quarter of 2019 and $0.53 for the second quarter of 2020, and was $13.34 for the first nine months of 2020 compared with $16.32 for the first nine months of 2019.
Goldman Sachs said its annualized return on average common shareholders’ equity (ROE) was 17.5% for the third quarter of 2020 and 8.0% for the first nine months of 2020. Annualized return on average tangible common shareholders’ equity was 18.6% for the third quarter of 2020 and 8.5% for the first nine months of 2020.
At the time of writing, Goldman Sachs’ shares traded 0.79% higher at $212.48 on Wednesday; however, the stock is down about 8% so far this year.
“Our ability to serve clients who are navigating a very uncertain environment drove strong performance across the franchise, building off a strong first half of the year. As our clients begin to emerge from the tough economy brought on by the pandemic, we are well-positioned to help them recover and grow, particularly given market share gains we’ve achieved this year,” said David M. Solomon, Chairman and Chief Executive Officer.
Goldman Sachs stock forecast
Fifteen analysts forecast the average price in 12 months at $250.64 with a high forecast of $326.00 and a low forecast of $200.00. The average price target represents an 18.01% increase from the last price of $212.38. From those 15 equity analysts, ten rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.
Morgan Stanley target price is $208 with a high of $295 under a bull scenario and $119 under the worst-case scenario. Goldman Sachs stock prices were raised by JMP Securities to $280 from $275 and BofA Global Research upped their price objective to $246 from $240.
Other equity analysts also recently updated their stock outlook. Deutsche Bank raised the price target to $230 from $227 and UBS increased their stock rating to buy from neutral, raising the target price to $245 from $220.
“We expect a strong finish to 2020, with 2H20 revenues up 9% y/y as stronger capital markets drive an earnings beat in 3Q, and the uncertainty/volatility around the election drive a strong backdrop for 4Q. That said, we remain Equal-Weight GS with a one-year time horizon as market volatility and the urgency around capital raising activity (both equity and debt) subside in 2021. We expect total revenues decline 9% y/y in 2021, driven by weaker trading revenues,” said Betsy Graseck, equity analyst at Morgan Stanley.
“Stock is trading at 0.8x 2021 BVPS, reflecting the 9-10% ROE we expect in 2021/2022. Over time, we expect GS can drive some multiple expansion as management executes on its multi-year strategic shift towards higher recurring revenues,” Graseck added.
Upside and Downside Risks
Upside: 1) Quick and sustained economic / capital markets rebound. 2) Strong trading environment and market share gains. 3) Strategic changes drive revenue/EPS growth sooner than expected. 4) Faster expense reduction. 5) 1MDB issue resolved quickly – highlighted Morgan Stanley.
Downside: 1) Markets decline sharply and IBD activity stalls through 2021. 2) Higher loan losses in consumer loan books. Energy prices decline further. 3) Strategic changes take longer to execute.
Goldman Sachs, an American multinational investment bank and financial services company headquartered in New York City, has joined syndicate for Chinese financial technology firm Ant Group IPO of up to $30 billion, two people with direct knowledge told Reuters.
Ant Group, an affiliate company of the Chinese Alibaba Group, plans to list simultaneously in Hong Kong and Shanghai, in what sources have said could be the world’s largest IPO and come happen next month, according to Reuters.
Goldman Sachs’ shares closed 1.62% to $210.94 on Friday. However, the stock is down about 8% so far this year.
Goldman Sachs stock forecast
Sixteen analysts forecast the average price in 12 months at $246.27 with a high forecast of $323.00 and a low forecast of $192.00. The average price target represents a 16.75% increase from the last price of $210.94. From those 16 analysts, ten rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.
Morgan Stanley gave a target price of $192 with a high of $295 under a bull-case scenario and $119 under the worst-case scenario. Goldman Sachs stock prices were raised by Citigroup to $285 from $265 and Oppenheimer lowered their target price to $323 from $355.
Other equity analysts also recently updated their stock outlook. UBS raised their stock price objective to $220 from $200, Berenberg upped their target price to $200 from $160, D.A. Davidson raised target price to $238 from $215, RBC increased their stock price forecast to $225 from $200, KBW raised price objective to $260 from $240, Evercore ISI raised target price to $235 from $230 and Credit Suisse raised price objective to $255 from $240.
“While GS is in the middle of a multi-year strategic shift, a majority of the business still skews to capital markets. We expect the stock remains range-bound, as capital markets-related revenues can be volatile given the elevated level of macro uncertainty,” said Betsy Graseck, equity analyst at Morgan Stanley in July.
“Stock is trading at 1.0x BVPS, reflecting the 9-10% ROE we expect in 2021/2022, driving our Equal-weight rating,” she added.
Upside and Downside risks
Upside: 1) Quick and sustained economic / capital markets rebound. 2) Strong trading environment and market share gains. 3) Strategic changes drive revenue/EPS growth sooner than expected. 4) Faster expense reduction. 5) 1MDB issue resolved quickly – highlighted Morgan Stanley.
Downside: 1) Markets decline sharply and IBD activity stalls through 2021. 2) Higher loan losses in consumer loan books. Energy prices decline further. 3) Strategic changes take longer to execute.
The US stock market stalled early this week as earnings started to hit. A number of news and other items are pending with earnings just starting to roll in. There have been some big numbers posted from JP Morgan and Goldman Sachs. Yet, the markets have reacted rather muted to these blowout revenues.
We believe this is a technical “Double Top” set up in the making. The NASDAQ has been much weaker than the S&P and the Dow Industrials. We believe the US stock market is reacting to the reality of earnings and forward guidance after the recent rally in price levels over the past 9+ weeks. If we are correct and this Double-Top pushes price levels lower, then this technical resistance level may become the price ceiling headed into Q3 and Q4 2020.
E-mini S&P 500, Weekly chart
This ES, E-mini S&P, Weekly chart highlights the technical Double Top pattern that we believe will become a major price ceiling as earnings and other economic data continues to be released. This is a perfect example of how technical patterns align with fundamental data to present very clear trading signals. If the resistance near 3220 holds as we expect, the ES price level should begin to move lower attempting to target the 3000 level.
SPY ETF Weekly Chart
This SPY ETF Weekly chart highlights the similar Double-Top pattern that has setup with further indicates strong resistance near $322 – which aligns with the original Fibonacci Bearish Trigger Level from the February peak levels (the solid RED line). The Double-Top setup near the Fibonacci Bearish Trigger level suggests a very strong resistance level that exists near $322. It is our opinion that this Double-Top setup near strong resistance will likely push the SPY into a downside price trend targeting $300 or lower.
Transportation Index Weekly Chart
This Transportation Index Weekly chart highlights a different type of resistance price pattern – a downward sloping price channel peak. Unlike a Double-Top pattern, when price creates unique high price peaks that align into a price channel, we can attempt to use this channel as a price resistance channel going forward. In this case, the peak price level in February 2020 and the peak price level in June 2020 creates a very clear downward price channel that matches the current price peak perfectly.
It is our opinion that this peak level will act as strong price resistance in the Transportation Index and should prompt a downside price trend targeting $8900 to $9000 or lower.
As global traders and investors continue to trade the forward expectations and earnings data that will last another 4+ weeks, we have to be prepared, as skilled technical traders, to trade any decent price moves that initiate as a result of price reacting to this technical resistance and moving lower. As technical traders, we will wait for confirmation of a trading signal before jumping into a trade from these levels. This makes a big difference in terms of accuracy. Once we receive a confirmation of the technical pattern, we believe the trade has a much higher accuracy ratio.
In closing, be prepared for bigger downside price trends as this technical resistance works through the markets. After the peak in June 2020 and the setup of this Double-Top pattern, our researcher team believes a downside price move from current levels is highly likely.
Chief Market Strategies
Founder of Technical Traders Ltd.
NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research. It is provided for educational purposes only. Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.
It’s a bumper week for US bank results, with Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Wells Fargo all revealing how they fared in Q2. These results are likely to be closely scrutinised for further evidence that US banking chiefs are concerned about setting aside higher provisions in respect of large-scale loan losses, after the $25bn set aside at the end of Q1.
The impact on the US, UK and European banking sectors has been fairly similar in terms of share price performance, with banks a serial drag on all of the major indices. The S&P 500 is now back to slightly negative year-to-date, while the CMC Markets US Banks share basket is down 35%.
CMC bank baskets sector comparison (2020)
One shouldn’t read too much into this similar performance given that US banks have come down from a much higher baseline. But the declines do highlight where the pressures lie when it comes to the weak points in the global economy, as rising unemployment puts upward pressure on possible loan default rates.
This higher baseline for US banks came about in the aftermath of the financial crisis, when US authorities took much more decisive action to shore up their banking sector in the wake of the collapse of Lehman.
The thought process as the crisis was unfolding was that capitalism needed to take its course in allowing both Bear Stearns, as well as Lehman, to collapse in order to make the point that no one institution was too big to fail. It’s certainly a sound premise, and in most cases allowing a failing business to fold wouldn’t have too many long-term consequences.
Unfortunately, due to the complex nature of some the financial instruments designed by bankers and portfolio managers, it was a premise that was destined to fail. Its failure still scars policymakers’ reaction function when they make policy decisions today.
It soon became apparent in the fall of Lehman, that allowing one big player to fail caused widespread panic in the viability of almost every other financial institution. Like pulling one Jenga block out of a tower of financial complexity, it undermined the stability of the entire construct.
Some institutions continue to be too big to fail, as well as being too big to bail out, meaning that global policymakers only have the tools of annual stress tests to ensure that these institutions have the necessary capital buffers to withstand a huge economic shock.
Since those turbulent times when US authorities forced all US banks to clean up their balance sheets, by insisting they took troubled asset relief program (TARP) money, whether they needed to or not, the US banking sector has managed to put aside most of its problems from the financial crisis.
As can be seen from the graph below, the outperformance in US banks has been remarkable. However a lot of these gains were juiced by share buybacks, as well as the tailwind of a normalised monetary policy from the US Federal Reserve from 2016 onwards, and a US economic recovery that peaked at the beginning of 2019.
US banks’ share price performance
It should also be noted that while Bank of America has been by far the largest winner, it was also one of the biggest losers in 2008, due to its disastrous decision to purchase Countrywide. The deal prompted the Bank of America share price to plunge from levels above $50 a share to as low as $3 a share, costing the bank billions in losses, fines and aggravation.
UK and European banks shares in similar plight
UK authorities have also gone some way to improving the resilience of its own banking sector, though unlike the US, we do still have one big UK bank in the hands of the taxpayer, in the form of Royal Bank of Scotland. Others have been left to fend for the scraps in fairly low-margin banking services of mortgages, loans and credit cards.
UK banks’ trading operations were also curtailed sharply in the wake of the financial crisis, in the mistaken belief that it was so-called ‘casino’ investment banking that caused the crisis, rather than the financial ‘jiggery-pokery’ of the packaging and repackaging of CDOs of mortgages and other risky debt.
In Europe, authorities have made even fewer strides in implementing the necessary processes to improve resilience. The end result is that the banking sector in the euro area is sitting on very unstable foundations, with trillions of euros of non-performing loans, and several banks in the region just one large economic shock away from a possible collapse.
The current state of the banking sector
While we’ve seen equity markets remain fairly resilient in the face of the massive disruption caused by the coronavirus pandemic, the same cannot be said for the banking sector, which has seen its share prices sink this year.
Nowhere is that better illustrated than through our banking share baskets over the last 15 months.
Banking sector vs US SPX 500 comparison
Despite their fairly lofty valuations, the share price losses for US banks have seen a much better recovery from the March lows than has been the case for its UK and European counterparts.
This has probably been as a result of recent optimism over the rebound in US economic data, although the recovery also needs to be set into the context of the wider picture that US banks are well above their post-financial-crisis lows, whereas their European and UK counterparts are not.
Another reason for this outperformance on the part of US banks (black line) is they still, just about, operate in a largely positive interest rate environment, and also have large fixed income and trading operations, which are able to supplement the tighter margins of general retail banking. They have also taken more aggressive steps to bolster their balance sheets against significant levels of loan defaults.
In Q1, JPMorgan set aside $8bn in respect of loan loss provisions in its latest numbers, while Wells Fargo set aside $4bn. Bank of America has set aside $3.6bn, while Citigroup has set aside an extra $5bn. Goldman Sachs also had a difficult first quarter, largely down to setting aside $1bn to offset losses on debt and equity investments.
With New York at the epicentre of the early coronavirus outbreak, Bank of New York Mellon’s loan loss provision also saw a big jump, up from $7m a year ago to $169m. Morgan Stanley completed the pain train for US banks, with loan loss provisions of $388m for Q1, bringing the total to around $25bn.
What to look out for as US banks report Q2 figures
As we look ahead to the US banks Q2 earnings numbers, investors will be looking to see whether these key US bellwethers set aside further provisions in the face of the big spikes seen in unemployment, and the rising number of Covid-19 cases across the country.
Another plus point for US banks will be the fees they received for processing the paycheck protection program for US businesses. It’s being estimated that US banks that are part of the scheme have made up to $24bn in fees, despite bearing none of the risk in passing the funds on from the small business administration.
In the aftermath of the lockdowns imposed on the various economies across Europe, the Eurostoxx banking index hit a record low of 48.15, breaking below its previous record low of 72.00 set in 2012 at the height of the eurozone crisis. It’s notable that UK banks have also underperformed, though it shouldn’t be given the Bank of England’s refusal to rule out negative rates, which has helped push down and flatten the yield curve further.
This refusal further suppressed UK gilt yields, pushing both the two-year and five-year yield into negative territory, and eroding the ability of banks to generate a return in their everyday retail operations.
It’s becoming slowly understood that negative rates have the capacity to do enormous damage to not only a bank’s overall probability, but there is also little evidence that they can stimulate demand. If they did, Japan, Switzerland and Europe would be booming, which isn’t the case.
Most likely, the market will focus on the banks’ earnings outlook since the second-quarter is expected to look bad. For example, Citigroup’s earnings are expected to decline from $1.06 per share in the first quarter to just $0.27 per share in the second quarter.
While traders wait for the upcoming earnings reports, S&P 500 futures are gaining ground in the premarket trading session, and the U.S. stock market is set to continue its upside trend.
China Announces Sanctions Against U.S. Senators
In the previous week, the U.S. has sanctioned high-ranked Chinese officials for alleged human rights abuse against Uighur minority in China. China promised to introduce counter-measures but did not provide any details about such measures at that time.
Today, these counter-measures were revealed. China decided to announce sanctions against U.S. Senators Marco Rubio and Ted Cruz. U.S. Representative Chris Smith as well as U.S. Congressional-Executive Commission on China were also put on sanctions list.
This move marks another increase in U.S. – China tensions which have unnerved the market for quite some time. While these sanctions will not have a direct impact on day-to-day business life, they show that both U.S. and China are ready to take new steps in their battle against each other, which is a major risk factor as the world economy tries to recover from the hit dealt by the coronavirus pandemic.
Inflation Is Expected To Return Back Into The Positive Territory
American Airlines Group Inc, a publicly-traded airline holding company headquartered in Fort Worth, Texas, announced that it is planning to secure $3.5 billion in new financing to enhance the company’s liquidity position as the coronavirus and related travel restrictions have led to a collapse in air travel demand.
American Airlines Group, the largest in the U.S., proposed a private offering of $1.5 billion aggregate principal amount of secured senior notes due 2025. The notes will be guaranteed on a senior unsecured basis by American Airlines Group Inc.
The company also stated that it intends to enter into a new $500 million Term Loan B Facility due 2024 concurrently with the closing of the offering of the Notes, American Airlines Inc reported.
According to Bloomberg’s June 19 report, the junk bonds were expected to carry a yield of 11%. However, the company said that the final terms and amounts of the notes and the Term Loan are subject to market and other conditions and may be different from expectations.
The Company intends to grant the underwriters of the offerings a 30-day option to purchase, in whole or in part, up to $112.5 million of additional shares of Common Stock in the Common Stock Offering and a 30-day option to purchase, in whole or in part, up to $112.5 million aggregate principal amount of additional Convertible Notes in the Convertible Notes Offering, in each case solely to cover over-allotments, if any, the company said.
The Company expects to use the net proceeds from the Common Stock Offering and the Convertible Notes Offering for general corporate purposes and to enhance the Company’s liquidity position. The closing of neither the Common Stock Offering nor the Convertible Notes Offering is conditioned upon the closing of the other offering, the airline added.
American Airlines Group closed nearly 3% lower at $16 on Friday. It has plunged about 45% so far this year, still outperforming every peer. Fourteen analysts forecast the average price in 12 months at $13.78 with a high of $27.00 and a low of $7.00.
The average price target represents a -13.88% decrease from the last price of $16.00, according to Tipranks.
It is good to sell at the current level as 150-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.
After Monday’s lackluster trade, due to the extended holiday week-end, stock market investors will be gearing up for the start of earnings season, which kicks off on Tuesday with 52 S&P 500 companies expected to report by the end of the week. Here are the most important factors to consider before trading on Tuesday.
Big Banks on Deck
Investor focus will be on the big Wall Street banks as J.P. Morgan Chase, Citigroup, Goldman Sachs and Wells Fargo are expected to report on Tuesday, Bank of America on Wednesday and Morgan Stanley on Thursday.
According to Reuters, “The big U.S. banks are expected to report a 1.2% decline in earnings due to falling interest rates, a raft of unsuccessful stock market floatation and trade tensions.”
FactSet is expecting S&P 500-financial company earnings to drop 2.6% this quarter, weighed down by the Federal Reserve lowering interest rates twice since July, which pressures bank’s main business of deposits and lending.
Overall Earnings Weakness
Reuters also said, “Overall, analysts are forecasting a 3.2% decline in profit for S&P 500 companies for the quarter from a year earlier, based on IBES data from Refinitiv.
Analysts at FactSet presented a more bearish outlook, saying as the season kicks into gear this week, S&P 500 firms are expected to report a 4.6% earnings decline over the same period a year ago. If the period ends up with a negative number, that will make three quarters in a row, the first time that’s happened in three years.
Quarterly Market Outlook
Analysts at Edward Jones are saying, “Stocks appear on track to finish the year strong, with the S&P 500 near a record high, despite a volatile past quarter during which slower global growth and trade tensions caused recession fears to spike.”
“Twists and turns on the U.S./China trade front continue to drive market swings, with stocks rising last week on optimism that both sides are looking at a phased approach to a trade deal, which was announced after market close on Friday.”
“This incremental progress is encouraging, but additional phases of agreement or a larger deal that includes key issues like intellectual property, technology transfers and enforcement will likely take more time.”
“Thus, trade issues will remain a source of volatility. More broadly, we expect stocks to continue to rise but at a slower pace than they have over the past few years, supported by ongoing economic growth, earnings growth and lower interest rates.”
Goldman Sachs Group (GS), the once bastion of the exclusive super rich and 150 years old this year, is now a much more diverse and outward looking organization than it used to be. The notoriously long hours and 100%+ commitment expected and demanded from the investment bank from staff is still the creed of the place but with the launch of products like the Marcus account things are changing.
The Marcus (named after the company’s founder Marcus Goldman) “offers no-fee, fixed-rate personal loans, high-yield online savings accounts and certificates of deposit to help people achieve financial well-being”, something that the founder would find very interesting as the bank made its reputation in investment banking and successful IPOs. In the UK the account is a little over a year old and is “an easy-access savings account”, which at the time paid 1.5% AER, including a fixed bonus of 0.15% for 12 months, which was the highest in the UK since 2016.
So why would THE bank, as many refer to GS, be interested in online savers in the UK and fixed-rate personal loans for ordinary US workers? Answer – Reputation. It all goes back 11 years and the great financial crisis of 2008, when Goldman Sachs and all of Wall Street were deemed to be the bad boys that caused the crisis, yet they were “bailed out” by the government as ordinary workers lost their jobs and homes. In September that year Bear Sterns and Lehman Brothers had failed and thousands of jobs were lost, and it was not only banks, but Insurance giant AIG also required a bail out of $85 billion to survive. The money was coming from the US government and the guy in charge of the US Treasury at the time was Henry (Hank) Paulsen (a former CEO of THE bank). A total of $800 billion was eventually pumped into the US economy to save Recession becoming Depression. GS (and Morgan Stanley) were seen as the next most vulnerable of the Wall Street banks and 11 years ago this week they received $10 billion each from the government, a relatively small amount compared to others on Wall Street, but reputations were fundamentally tarnished. A month later in November 2008 the stock was trading at under $49.00.
The consensus for next week’s earnings, from the 28 analysts that follow the stock, is for Earnings per share to top $5.03 and Revenue to be in excess of $8.55 billion. Many major hedge funds remain bullish but wary of financials, with reports that the number of bullish hedge fund positions fell by 15 in recent months. Overall, however, hedge fund sentiment is still quite bullish, just not as bullish as before and with GS not being a top 30 hedge fund pick, although it was in 61 hedge funds portfolios at the end of June 2019.
Technically, the stock printed a Double Top (bearish) at $220.00 and has support zones at $195.00, $180.00 and $150.00. It remains below key 50 and 200-day moving averages. $206.00 is the first key Resistance zone if the double top is to be tested again.
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American markets had an impressive rally on Tuesday, triggering the growth of S&P500 and DJI indices by 2.2% during the day. The market participants’ enthusiasm was based on a strong start of the reporting season of the largest U.S. companies.
Johnson & Johnson (positive signal for household demand) and Goldman Sachs Group Inc. (good news for the banking sector) exceeded market expectations. In addition, the positive tone of the markets after their closure supported a take-off of Netflix shares. The shares of the company at the pre-bid add 12%, pulling up the quotations of other IT-Giants.
Regular statistics from the United States also managed to maintain a positive attitude. The number of open job vacancies in the United States has updated the historical record in August, the Bureau of Labour Statistics reported yesterday. Industrial production has grown for the 4th month in a row, adding 0.3% in September.
On the contrary, the data from Europe were not so bright. German Business sentiment index from ZEW fell by 14.1 points to the July lows -24.7. Uncertainty in the world trade strongly suppresses export-oriented business optimism of the country. The weak Merkel’s party results in local elections in the German regions are also exerting pressure on a single currency.
As a result, the single currency could not catch the levels above 1.16000 dollars. On Wednesday to the beginning of the European session, EURUSD is trading around 1.1550, despite the recovery of the demand for risks, which often plays against the American currency.
On Wednesday, the publication of the Fed’s minutes following the September meeting is on the market’s agenda. The Committee is expected to maintain its bias towards a further tightening of the monetary policy, hinting at the possibility of hikes in December and several more increases next year. Although Trump does not weaken the grip, almost every day criticizing the Fed, so far these comments have not had a long-lasting impact on the stock markets and the dollar. It is likely that the markets will continue to respond more to the Fed’s comments than to the president’s statements about the dollar.
NASDAQ Leader Adena Friedman Speaks Positively about Cryptos
The CEO of NASDAQ Adena Friedman gave a big thumbs up for cryptocurrencies yesterday via an interview given on CNBC. The head of NASDAQ said she is open to letting regulated cryptocurrencies trade on the exchange in the future when the digital asset market matures. Friedman was also vocal about the need for the Security Exchange Commission to expand its supervision over Initial Coin Offerings to protect investors.
A Large of Chorus of Opinionated Voices is a Certainty for Bitcoin
Bitcoin roared near the 9300.00 U.S Dollars level yesterday, but has been brushed back overnight and early this morning. The digital asset is trading near 8800.00 and speculative action has been fierce. Bitcoin has enjoyed a solid two-week uptrend. Important psychological resistance remains around the 10,000 level, while support in the short term appears to be the 7500.00 juncture. If Bitcoin breaks through resistance or falls below support, it will set off a large chorus of voices from either it’s always positive ‘camp followers’ – or its critics. The next two days of trading for Bitcoin will be intriguing.
Positive and Big Week for Digital Assets via Goldman Sachs and NASDAQ
It has been a positive and big week for cryptocurrencies as they have essentially gotten a vote of confidence from Goldman Sachs and the NASDAQ. However, this doesn’t mean the value of cryptocurrencies will trend in a positive direction. The bear market which has engulfed digital assets the past four months has not completely vanished. Traders need to remain alert and volatility is certain to be part cryptocurrencies as speculative elements remain powerful.
Moscow Hosting Two Day Blockchain Event
Moscow will host the World Blockchain Summit today and tomorrow. It will be attended by cryptocurrency leaders and Blockchain experts.
April 26th – 27th, Russia, World Blockchain Summit in Moscow
Bitcoin and other digital assets have added value this morning as buyers have shown their speculative teeth again.
Bear Market Trend Weakens as Moving Averages Improve
As cryptocurrencies enjoy a moment of speculative buying, it may also prove worthwhile to acknowledge how far their sphere of influence has grown over the past year. While talking about regulation regarding the trading of digital assets has gained fervor in places like the U.S, Japan, the U.K and a host of other countries – this has not deterred the steady growth of new business ventures. And this weekend, Iran which has been rumored to be considering a state-run cryptocurrency, announced it is banning independent cryptocurrency trading as it tries to fight a disintegrating economy while its citizens search for stable assets. Meaning the influence of cryptocurrencies continues to build a foundation, even as virtual assets deal with controversial issues and governments respond reactively.
More Buyers Climb into Bitcoin Early this Morning
Bitcoin has powered higher this morning. The cryptocurrency was quiet yesterday as it hovered near the 8,900.00 U.S Dollar level, but Bitcoin has found additional buyers and is currently close to 9200.00 Dollars. The digital asset is now within a value range not experienced since early March. The question is where momentum will take Bitcoin next? The last ten days have provided a solid kick start for buyers. If the cryptocurrency can punch through resistance at its current values, traders will target the 10,000 U.S Dollar mark. For traders who believe the bear trend will flare again, the 8400.00 level should be watched carefully.
Goldman Sachs Indicates it is Growing Serious about Cryptocurrencies
Goldman Sachs, the large investment firm, has announced it has hired Justin Schmidt to head its new digital asset division. In late 2017, Goldman Sachs admitted they were considering the possibility of allowing cryptocurrencies to be traded by its company. The hiring of a known cryptocurrency trader as the leader for its digital asset division signals the investment bank is strongly considering the possibility of allowing the institutional trading of cryptocurrencies – which would be a large milestone for digital assets.
ICO Roadshow in Toronto Today
Toronto, Canada will host a Blockchain conference today. The event is part of a coordinated ICO roadshow which met in Silicon Valley and New York City the past week.
April 24th, Canada, Blockchain Conference in Toronto