Finimize - 💪 Goldman showed the rest up

Hi Reader, here's what you need to know for July 19th in 3:11 minutes.

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Today's big stories

Goldman Sachs and Bank of America reported strong quarterly results
Investors are worried that a recession is imminent, so Goldman Sachs has predicted what that could mean for stocks – Read Now
Deliveroo gave a completely unappetizing trading update

Best For Last

What’s Going On Here?

Goldman Sachs and Bank of America (BofA) reported strong quarterly results on Monday.

What Does This Mean?

Goldman and BofA were the last of the six big US banks to report results this earnings season, and they’ve rounded us off in style. Let’s get the bad news out of the way first: both Goldman and BofA reported drops – 41% and 47% respectively – in their investment banking revenue compared to last year, mainly because dealmaking took a plunge and fewer companies used their services to issue new stock or raise more debt.

Then there’s the good news: Goldman’s bond traders made around $700 million more than analysts expected, helping the bank report a 32% surge in trading revenue after volatile markets “significantly” increased commodity and currency trading volumes too. BofA, meanwhile, saw its net interest income – a key source of revenue – grow by 22% thanks to higher interest rates. So while both banks saw their overall revenue drop, they still came in above analyst expectations.

Why Should I Care?

For markets: Brace yourselves.
Those results might’ve pacified investors for now, but the wider banking sector might have trouble coming its way. For one, bank executives predict borrowing will fall as higher rates put off customers from taking out new loans. And for another, banks are expected to put more cash reserves together in case a recession prevents hard-up borrowers from repaying their debts. That, then, might be why a key index tracking some of the US’s biggest banks has fallen more than the S&P 500 this year.

Zooming out: Home-owning sucks.
Rising interest rates are already hurting the housing industry: data out on Monday showed that US homebuilder confidence fell to its lowest level in two years in July, after suffering its biggest monthly drop since April 2020. You can hardly blame them for feeling down: rising material prices and borrowing rates have pushed the cost of building a house higher than its sale value in some cases.

You might also like: How to forecast the markets better than Wall Street’s been doing.

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Analyst Take

Just How Bad Are Things Going To Get?

Carl Hazeley, Analyst

So far, not so good.

US inflation has risen above economists’ expectations, and investors are worried that the Federal Reserve will take drastic measures.

After all, massive interest rate hikes could tip the economy into a recession.

But since that is a real possibility, it’s worth exploring how a turn for the worst would impact US companies, and, in turn, their stocks.

So that’s today’s Insight: how bad could things really get, and what that means for US stocks.

Read or listen to the Insight here

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