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Goldman Sachs hits six-year high

The Wall Street bank is now at a level not seen since February 2008 as it passed the $1 trillion mark in deals.

Goldman Sachs logo
Source: Bloomberg

Goldman Sachs Group has overseen $1 trillion worth of deals this year as mergers and acquisition activity has powered ahead. Record highs in Wall Street and the US 500 have sparked a series of public listings and an increase in M&A deals. The New York-headquartered bank was the first of the US banks to break the $1 trillion level in transaction values since 2007. JPMorgan Chase & Co is in second place with $740 billion worth of deals under its belt. While global equity markets continue to soar, the Wall Street dealmaker’s services will be in demand. 

Goldman Sachs had a great third quarter as strong equity markets and increased volatility in the fixed income business helped the bank post a 50% jump in profits and a 15% increase in revenue. Income from bond trading climbed by 74% in the three months until 30 September as an interest rate cut from the European Central Bank, and speculation that the Federal Reserve were close to winding down quantitative easing, injected volatility into the fixed income markets. 

The US bank derives 26% of its income from fixed income, currencies, and commodities trading. Some analysts feel that too much of the bank’s earnings are dependent on the financial markets division, but that is down from 40% in the pre-credit crisis era. CME Group stated that October was a record month in terms of volumes and this leads me to believe that Goldman Sachs would have had a strong start to its fourth quarter.

Next year the Federal Reserve is expected to move away from ultra-low interest rates and dealers are gearing up for tense trading, which will benefit Goldman Sachs Group given the structure of its revenue stream. The US central bank is already considering dropping the phrase ‘considerable time’ from its statement and next week’s Federal Open Market Committee meeting could see the expression excluded. As Chris Beauchamp stated, US banks are trading higher in anticipation of raised interest rates in 2015.

Goldman Sachs Group will announce its full-year numbers in January 2015, and traders are expecting revenue of $35 billion and earnings per share of $17.36. These predictions represent a 2% increase in revenue and an 8% rise in EPS.

Third-quarter figures comfortably exceeded market expectations. Revenue for the period was $8.3 billion and EPS was 456 cents, while the consensus was for $7.82 billion and 320 cents respectively. The investment bank will announce its fourth-quarter numbers on 16 January, and dealers are expecting revenue of $8.18 billion and EPS of 491 cents. Last year’s fourth-quarter revenue and EPS were $8.78 billion and 460 cents respectively. 

Other investment banks are bullish on the stock and out of the 32 recommendations, ten are buys, 17 are holds and five are sells. Analysts' average target price is $185.86 which is 5% below the current price. Equity analysts are more bullish on Morgan Stanley (All Sessions), for which there are 16 buy ratings, 16 hold recommendations and three sell ratings. The average target price is $37.50 which is marginally higher than the current price.

Goldman Sachs Group is receiving support at the 200-hour moving average of $191.21. The stock has pulled back in the recent sessions but I foresee it making an attempt on $200 before the fourth-quarter figures get announced.

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