The first earnings season of 2025 is underway, and as always, the financial sector is leading investors into the first round of action this week. While banking stocks aren’t exciting to most people, the largest investment banks usually give many clues about where the economy is or might be headed. Since it is directly linked to the business cycle, investors should start paying attention to it today.
But there are two types of banks. There are commercial banks that deal in more traditional products such as mortgages and personal solutions, and then there are investment banks that deal with corporate finance and the broader business cycle.
Goldman Sachs Group today
Goldman Sachs Group
As of 03:58 PM ET
- 52 week range
- $372.07
▼
$612.73
- Dividend yield
- 1.98%
- P/E ratio
- 17.78
- Price target
- $569.31
The former group is a great measure of the consumer cycle, while the latter group is better for investors trying to figure out which direction the financial markets are headed.
Knowing this, in-depth analysis of Goldman Sachs Group Inc New York Stock Exchange: A And the most recent one Quarterly earnings report They can be of great value to start the year, as investors can then point their portfolios in the right direction.
By displaying price action, as well as detailing which sectors of the bank have outperformed, the picture becomes clear as day.
Goldman Sachs stock price movement leads to better markets
The main difference between a bank like Goldman Sachs and… Bank of America Company New York Stock Exchange: PAC Is that their price actions follow different markets.
Bank of America Today
Bank of America
As of 03:58 PM ET
- 52 week range
- $31.27
▼
$48.08
- Dividend yield
- 2.20%
- P/E ratio
- 17.17
- Price target
- $47.50
When Goldman Sachs outperforms Bank of America, it means that underlying business trends are probably on the stronger end of the spectrum, while the opposite may indicate a stronger defensive environment.
Investors can see this theme in action as Bank of America outperformed Goldman Sachs over the period from 2020 to 2022. During the peak months of COVID-19, the defensive consumer finance space was viewed as less risky, and as a lower interest rate environment and a safer consumer. . With the advent of space, Goldman Sachs took over.
The last year has seen a 57% performance in Goldman Sachs stock, while Bank of America has only seen a 47.3% rise. The implications of this price spread can signal to investors that a new business cycle may be underway, and there are specific ways to see how a bank’s business is performing.
Traders shine, deals make bottoms
There are two main businesses at an investment bank like Goldman Sachs: the trading business and the dealmaking business (investment banking). They both deal in either equity (stocks) or debt (bonds), and the activity levels between the two are where all the insight for investors lies.
When investment banking clients look to engage more with stock trading or underwriting, it likely means that stock prices are too high. The same is true for bond underwriting activity and bond prices in general. Today, most of the activity and growth has come from stocks, pushing the quarterly growth rate to 32%.
On the other hand, while stocks have outperformed bonds over the past 12 months, there is a bit of a rotation happening now in the market. Debt underwriting grew 35% over the past quarter to outperform equity. What this means is that markets are starting to find more favorable setups in bonds compared to stocks.
This makes sense because, using this insight, Goldman Sachs analysts decided to warn Main Street of potential tail risks in the S&P 500, recommending investors look to buy bonds and commodities instead within the confines of their stocks. Global Macro Report 2025. This may be why Buffett reached his record 25% cash position today.
This would also explain why the energy sector is suddenly back on the scene, with so many names in the world Power box for selected sector SPDR NYSEARCA:XLE Attracting more and more attention. Goldman Sachs also reported that cumulative investment banking (deal making) fees increased compared to last quarter.
This buildup means the bank expects bond prices to rise and yields to fall, which could lead to increased deal-making activity in 2025 as the financing environment becomes more flexible. What’s more, there’s one last check investors can take to Goldman Sachs’ balance sheet.
inside Show quarterly resultsInvestors will notice that the net discount rate decreased by 0.1% during the year. While this may not seem like much on a percentage basis, it means that the condition of the credit markets and the quality of loans are improving, making these bond investments fundamentally more attractive.
That’s why investors should watch iShares 20+ Year Treasure Bond ETF Nasdaq: TLTA shift to bonds seems inevitable at this point.
Before you consider Goldman Sachs Group, you’ll want to hear this.
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