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Research Market strategy
by Swissquote Analysts
Morning News

Goldman's Profit Falls 21% as Trading Slows

Topic of the day

Goldman Sachs Group Inc.'s first-quarter profit fell sharply as trading and underwriting slowed, showing the urgency of the firm's pivot away from those unpredictable Wall Street businesses. The bank's profit of $2.25 billion, or $5.71 a share, was 21% lower than the same period a year ago. Revenue fell in three of Goldman's businesses and was flat in its fourth. Cost cuts and lower taxes helped profits top muted expectations, but shares still fell more than 3% in afternoon trading. Goldman is in the midst of a multiyear effort to diversify away from trading, where profits have dwindled since the financial crisis. It is growing a consumer bank, developing a cash-management product for corporate treasurers, partnering with Apple Inc. on its first credit card and building data services it hopes will lure new types of trading clients. But the pivot is a slow one. The bank's first-quarter results show that, for now, Goldman is stuck in limbo, spending more than $1 billion on the new initiatives while still tethered to old standbys that are struggling. "We're looking to build value over the next three to five years, not over the next couple of quarters," Chief Executive David Solomon, who took the job last fall, said on a conference call with analysts. Trading revenue fell 18% from a year ago, when a burst of volatility sparked activity.

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Swiss stocks

The SMI was subdued but positive Monday, rising 0.3 percent to 9,514 points. Hopes of an imminent resolution to the US-China trade conflict and stocks’ appeal in the ongoing low-interest-rate environment buoyed the market. However, the effect of the newly opened reporting season has now soured. After US bank JP Morgan released strong financials Friday, the results offered by Goldman Sachs and Citigroup were not so well received. SMI bank stocks closed below their day’s highs, but still with gains. UBS rose 0.5 percent and Credit Suisse 1.1 percent. Credit Suisse also said it had reached an agreement whereby it now holds a majority stake in Chinese joint venture Credit Suisse Founder Securities Limited. This is seen as a sign that China is opening its financial sector. Nestle slid 1.2 percent, or CHF 1.17, and thus considerably less than its CHF 2.45 dividend payout. The strongest SMI stock was Alcon, which gained 2 percent after having had its IPO last week as a Novartis spin-off.

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International markets

Europe

The Stoxx Europe 600 edged up 0.1% for its fourth consecutive session of gains, boosted by gains in shares of banks and insurers. Investors welcomed French advertising company Publicis Groupe $4.4 billion purchase of digital marketing agency Epsilon. The deal is seen as a sign of Publicis' shifting strategy towards a data-led operation in the face of U.S. digital giants putting pressure on the traditional advertising model. The share price of the French utility EDF rose by 3 percent. The reason was a report in the newspaper Le Parisien that the French state, as a major shareholder, was considering buying out the free shareholders. The fact that the British office space landlord IWG sold its business in Japan to the TKP Group for £320 million was viewed positively on the stock exchange. The share price in London rose by 21 percent to 334 pence.

United States

U.S. stocks fell as a fresh batch of earnings reports sent bank shares sliding. The Dow Jones Industrial Average lost 53 points, or 0.2%, to 26358, erasing small gains from earlier in the session. The S&P 500 fell 0.2% and the Nasdaq Composite declined 0.4%. Goldman shares slipped 3.2% after the bank reported first-quarter profit tumbled, hit by quiet trading and underwriting. Citigroup shares bounced higher premarket, then fell 0.1% after the opening bell, weighed down by a worse-than-expected slide in revenue. With earnings for S&P 500 companies widely expected to decline in the first quarter from the year-earlier period, analysts and investors said they would be trying to get a sense of whether growth is set to falter further or rebound in the following quarters. Stocks began the day higher and then lost ground heading into the afternoon, with most of the S&P 500's sectors trading lower for the day. Energy shares in the S&P 500 fell 0.3% as U.S. crude oil retreated, pressured by indications that Russia could boost output in an attempt to regain some share of the global oil market. American Airlines shares lost 1.8% after the carrier said Sunday that it would extend flight cancellations through mid-August because of the grounding of Boeing's 737 MAX jetliners. Boeing shares fell 0.7%.

Asia

Most Asian stocks managed to hold on to minor gains, with the exception of China, as upbeat talk from the White House on trade negotiations with China failed to lift the mood in the region.

Bonds

U.S. government bond prices inched higher as stocks gave up some ground at the start of the week. The yield on the benchmark 10-year Treasury note settled at 2.553%, compared with 2.560% Friday.

Analysis

Evercore downgrades Continental target to 125 (140) EUR - Inline
Dt. Bank downgrades Software target to 34 (40) EUR - Hold
IR raises VW target to 163 (160) EUR - Hold
Barclays starts Dow Inc with Equal Weight and target to 60 USD

Produced by MBI Martin Brückner Infosource GmbH & Co. KG on behalf of Swissquote. All news is acquired with journalistic accuracy. No liability is assumed for delays or errors.

 
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