Dow Jones analysis: Where next for Goldman Sachs stock ahead of Q2 earnings?

Key takeaways

• Goldman Sachs continues to suffer from challenging conditions for its investment banking and trading arms
• Analysts agree earnings will fall once again, but wide EPS forecasts show Wall Street is divided on what to expect
• CEO warned last month of impairments to reflect weakness in commercial real estate
• Costs continue to rise to add further pressure on its bottom-line
• Has underperformed rivals this year and trades at a discount
• Dow Jones is on the cusp of hitting fresh highs

Goldman Sachs Q2 earnings date and time

Goldman Sachs is scheduled to report second quarter earnings before markets open on Wednesday July 19. A conference call will be held on the same day at 0930 ET.

Goldman Sachs Q2 earnings consensus

Goldman Sachs is forecast to report a sharp 49% year-on-year fall in earnings per share in the second quarter to $3.94 on net revenue of $10.5 billion, which would be down 11.8% from the year before.

Goldman Sachs Q2 earnings preview

Goldman Sachs has been among the worst performers of major US banks in 2023, having suffered from tough conditions in investment banking and trading and the environment will have remained challenging in the second quarter, with the bank expected to post its seventh consecutive quarter of lower earnings.

However, analysts have different views on just how bad this earnings season will be for Goldman Sachs. The EPS range varies from as low as $2 to as high as $6.91, according to a Bloomberg-compiled consensus of 21 analysts. That represents the widest range of estimates of any major US bank this earnings season and shows analysts think earnings could fall anywhere between 10% to 74% from the year before.

That means some are in for a surprise this week whatever the outcome and sets the stock up for potential volatility.

Goldman Sachs CEO David Solomon warned just last month that it would be booking impairments on loans exposed to commercial real estate, which is suffering as demand for offices and shops fails to fully recover in wake of the pandemic. That will see it write-down more loans, as well as investments made in companies exposed to the commercial real estate sector. Solomon admitted these will be a headwind for the bank, but described them as ‘manageable’.

He also said income from trading will remain under severe pressure, with revenue from fixed-income forecast to be down almost 23% while equities is expected to be down 16%.

Investment banking also remains a big problem. Fees are forecast to be down over 20% from last year in the second quarter. A lack of appetite for M&A deals, listings and fundraises has led to fees drying-up after booming during the pandemic.

Together, its trading and investment banking arm make up its Global Banking & Markets division, which is forecast to report a 19.9% drop in net revenue to $6.7 billion in the second quarter when results from both parts of the business are smoothed out.

The bright spot will be its Asset & Wealth Management arm, where net revenue is expected to be up 10% from the year before at $3.5 billion thanks to the recovery in equity valuations and a jump in lending. It just won’t be enough to counter the troubles at the much larger Global Banking & Markets unit. Its small but fast-growing Platform Solutions arm is forecast to report a 67% jump in net revenue to $572.7 million.

Meanwhile, Goldman Sachs should see some benefit from its efforts to get a grip on costs as its bottom-line is under pressure. Operating costs are forecast to be up 3.3% from last year at $7.9 billion, although that would be the slowest increase in three quarters as Goldman Sachs has continued to lay off staff. Its efficiency ratio is expected to come in 74.7%, which would mark a welcome improvement from the 64.5% seen the year before.

Where next for GS stock?

Goldman Sachs shares is down almost 6% since the beginning of the year.

The bank could slip to around $314 before the supportive trendline provides a safety net as it has done so reliably over the past year. We saw a very bearish candlestick on Friday and there has been little relief so far in early trade this week, with the price currently testing the 50-day moving average. Trading volumes have trended lower since the last peak we saw a month ago to suggest momentum continues to wane, although we could see a pickup on results day.

On the upside, the stock needs to recapture $345, marking the ceiling that has proven difficult to break over the last three months. Although a move above $333 would be needed first considering this proved enough for investors to sell last week and back in May.

Dow Jones forecast: Where next for the index?

Keep an eye on the Dow Jones Industrial Average. Goldman Sachs is the third largest member of the index, with a weighting of 6.2%.

The index has climbed to its highest level in eight months and is on the cusp of moving above the 34,590 closing-high achieved at the end of November 2022. That, combined with the supportive trendline that can be traced back to last October, is forming a ascending triangle. The RSI is in bullish territory and suggests there is more upside potential. A move above the intraday high seen in December at 34,700 can then be reclaimed. A break to new highs could put it on course to move back above 35,000.

Any renewed pressure could see the index slide back to 34,300 but a slip below here would bring the supportive trendline at around 33,700 into play, broadly in-line with the 50-day moving average.

What about Morgan Stanley stock?

It also means there is a good chance that it will underperform its rival Morgan Stanley, which is expected to see a 16.9% fall in EPS to $1.20 when it reports on Tuesday morning. Estimates here are also wide, but not to the degree of Goldman Sachs, ranging from a tiny rise to a 34% fall in EPS.

Morgan Stanley is expected to see a milder decline in earnings because of a more resilient performance from its investment banking arm and because its overall a more diversified business that can counter weakness in in any one area.

Goldman Sachs has underperformed versus its rival for some time after suffering sharper falls in earnings over the last year. This has resulted in Goldman Sachs shares falling over 6% year-to-date and trading at a discount compared to Morgan Stanley, which has managed to book small gains.

The more traditional banks like JPMorgan and Wells Fargo have been among the best performing bank stocks this year after rising 12% and 6%, respectively, thanks to their exposure to higher interest rates but they have still underperformed the broader market, underscoring how disappointing the performance from Goldman Sachs and Morgan Stanley is.