More than one quarter of bank’s revenue is derived from trading so when JP Morgan posted a 23% decline in fixed-income trading, it sent a warning sign to the shareholders of Goldman Sachs. JP Morgan has the largest bond trading operation of all US banks, and it is worrying to see such a large decline in earnings when the financial markets were volatile during the period. As I previously stated, the market is concerned that Goldman Sachs is heavily dependent on trading revenue.
JP Morgan’s earnings from corporate and investment banking increased by 3% last quarter, and this puts Goldman Sachs in a strong position as the bank is the biggest deal-maker on Wall Street. The drop in JP Morgan’s profits was partially blamed on $1.1 billion of legal costs which was unique to the bank.
In the wake of the JP Morgan results, analysts have lowered their expectations for Goldman Sachs. Dealers are anticipating revenue of $34.55 and earnings per share of $16.98 for Goldman Sachs’s full-year figures. These forecasts equate to marginal rise in revenue and a 5.6% increase in EPS. The Wall Street titan will also report its Q4 figures on 16 January, and traders are expecting revenue of $7.65 billion and EPS of $4.35. The Q4 results last year were as follows; revenue came in at $8.78 billion and the EPS was $4.6.
Equity analysts are bullish on the company. Out of the 34 ratings, 11 are buys, 18 are holds and five are sells. The average target price for the stock is $196.91, which is 8.8% above the current price.
Investment banks are even more bullish on Morgan Stanley —out of the 37 recommendations, 15 are buys, 19 are holds and three are sells. The average target price is $39.12, which is 11% above the current price.
The 100-day moving average previously acted as support, but it will now act as resistance at $186.25. The stock has been in a downward trend since hitting $201.72 in late December, and the 200-day moving average at $175.66 is in short-seller’s sights. A move through that metric would put $170 in the crosshairs.