The first earnings season of 2025 begins and, as always, the financial sector is leading investors to the first round of action this week. While banking stocks aren’t all that interesting to most, the major investment banks tend to give a lot of clues as to what direction the economy is or could be headed at present. Because they are directly linked to the business cycle, investors should pay attention to them today.
However, there are two types of banks. There are commercial banks that focus on more traditional products such as mortgages and personal solutions, and there are investment banks that focus on corporate finance and the broader business cycle.
Goldman Sachs Group today
Goldman Sachs Group
As of 2:22 p.m. ET
- 52 week range
- $372.07
▼
$612.73
- Dividend yield
- 1.99%
- P/E ratio
- 17.72
- Target price
- $569.31
The first group is an excellent indicator of the consumer cycle, while the second is better suited for investors trying to figure out which direction financial markets are heading.
Knowing this, deep analysis Goldman Sachs Group Inc. New York Stock Exchange: GS and its latest quarterly earnings report could prove very helpful at the start of the year as investors can then steer their portfolios in the right direction.
By analyzing the price action, as well as analyzing which segments of the bank performed best, the picture will become clear as day.
Goldman Sachs share price change leads to better markets
The main difference between a bank like Goldman Sachs and Bank of America Co. New York Stock Exchange: BAK is that their price actions are tracked by different markets.
Bank of America today
Bank of America
As of 2:22 p.m. ET
- 52 week range
- $31.27
▼
$48.08
- Dividend yield
- 2.20%
- P/E ratio
- 17.19
- Target price
- $47.50
When Goldman Sachs outperforms Bank of America, it means underlying business trends are likely on the stronger side of the spectrum, while the opposite would signal a stronger defensive environment.
Investors can see this theme in action as Bank of America outperformed Goldman Sachs between 2020 and 2022. During the peak months of COVID-19, the defensive consumer finance space was seen as less risky, with an environment of lower interest rates and safer consumer credit. space began, Goldman Sachs took over.
In the last year, Goldman Sachs shares have risen 57%, while Bank of America has risen just 47.3%. The implications of such price dispersion can signal to investors that a new business cycle may be underway, and there are specific ways to determine how a bank’s business is performing.
Traders shine, trades are made from below
An investment bank such as Goldman Sachs has two main activities: the trading business and the deal making business (investment banking). Both deal in either equities (stocks) or debt (bonds), and the level of activity in between is where all the information is for investors.
When investment bank clients tend to get more involved in stock trading or underwriting, it likely means stock prices are too high. The same is true for bond underwriting activity and bond prices in general. Much of the activity and growth today came from equities, leading to quarterly growth of 32%.
On the other hand, although stocks have outperformed bonds over the past 12 months, there is now something of a rotation in the market. Debt underwriting rose 35% in the latest quarter, outperforming equities. This means that markets are starting to find conditions more favorable for bonds than for stocks.
This makes sense because, using this insight, Goldman Sachs analysts decided to warn Main Street about potential risks to the S&P 500, recommending investors buy bonds and commodities instead in their 2025 global macro report. This may be why Buffett has reached a record cash position of 25% today.
This could also explain why the energy sector is suddenly back in favor with many names popping up around the world. Select Energy Sector SPDR Fund NEW SIRKA: XLE attracting more and more attention. Goldman Sachs also reported that the backlog of investment banking commissions (for making deals) increased compared to last quarter.
The lag means the bank expects higher bond prices and lower yields, which could lead to a surge in deal activity in 2025 as the funding environment becomes more flexible. Moreover, there is one final check that investors can receive on Goldman Sachs’ balance sheet.
In the quarterly results presentation, investors will note that the net charge-off rate decreased 0.1% year over year. While this may not seem like much in percentage terms, it does mean that credit markets and credit quality are improving, making bond investments much more attractive from a fundamental perspective.
Here’s why investors should keep an eye on iShares 20+ Year Treasury Bond ETF NASDAQ: TLTas a turn towards bonds seems inevitable at this point.
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