Goldman Sachs stock is thriving ahead of a $3 trillion tailwind

Goldman Sachs (GS) stock price has been a top-performer in the past few decades. After bottoming at $35.31 at the height of the Global Financial Crisis (GFC), the stock has soared to almost $520, a 1,375% increase. 

Most recently, the stock has risen in the last nine consecutive months. It has jumped by 36% this year, outperforming other big US banks like JPMorgan, Citigroup, Bank of America, and Morgan Stanley, which have risen by 33%, 20%, 23%, and 15%, respectively.

Goldman Sachs turnaround is continuing

Goldman Sachs, the most popular in Wall Street, has done well since David Solomon took over as CEO from Lloyd Blankfein. It has risen by 180% beating all peers except Morgan Stanley, which has risen by over 184%.

The company’s rally has not been smooth though as it has done several mistakes. First, the company’s attempts to move from Wall Street to Main Street hit a big barrier, forcing it to scale back its ambitions.

For example, Goldman acquired GreenSky in 2021 in a $2.24 billion deal and sold it in 2023 for a big loss. It also scaled down its relationship with Apple, which did not bring in the anticipated results. 

Additionally, Goldman Sachs has gone through challenges following the end of the merger and acquisition (M&A) and Initial Public Offering (IPO) boom in 2023. These were notable events because, unlike JPMorgan, Goldman makes substantial sums of money from its investment banking division.

Consequently, Goldman’s annual revenue dropped from over $58 billion in 2022 to over $45.2 billion last year. Its net income also plunged from a peak of $21 billion to over $8.5 billion. 

Goldman has also gone through a series of high-profile executive exits. Earlier this year, Anne Marie Darling, a long-term executives left the bank. Other top officials who have resigned were Beth Hammack, Beth Hammack, and Stephanie Cohen.

There are signs that Goldman Sachs is starting to bounce back, partly helped by the Federal Reserve, which has maintained high interest rates for longer. Goldman’s net interest income has jumped from over $4.7 billion in 2019 to $6.35 billion last year.

Goldman’s Q2 earnings download

Goldman Sachs published results that were better than expected, providing more evidence that its numbers were improving. 

Total revenue came in at $12.73 billion while its net earnings and earnings per share (EPS) rose to $3.04 billion and $8.62. 

The company’s performance has been helped by its ongoing effort to become a major player in the wealth management industry. Its asset and wealth management’s revenue rose by 27% as its assets under management jumped to over $1.4 trillion.

Goldman Sachs’ results showed that it was starting to grow its key segments. Investment banking fees rose by 21% to over $1.73 billion as the number of deals rose. A study by the bank showed that M&A deals rose to $275 billion in the first half of the year, up from $265 billion a year earlier. The number of deals rose by 19% in the same period.

Analysts expect that deal activity will continue recovering when interest rates start falling and when there is more clarity on the next US president. Ideally, Donald Trump would be a good candidate because of his commitment to light touch regulations. 

While deals rose under Biden, his FTC sued to stop some of the biggest ones. It sued to stop Nvidia’s buyout of ARM Holdings and Albertson’s merger with Kroger. Also, the agency stopped the merger of JetBlue and Spirit Airlines. 

The other notable catalyst for the investment banking is that there is a backlog of $3 trillion of portfolio company exits. As such, a combination of low rates and a friendly regulatory environment will be good for Goldman.

Goldman’s FICC and equities business will also benefit when rates start falling. Historically, this trading division does well when interest rates are low.

Meanwhile, Goldman is still one of the cheapest big banks in the United States. It has a trailing price-to-book ratio of 1.59, lower than Morgan Stanley’s 1.82 and JP Morgan’s 2.02. 

Goldman Sachs stock price analysis

The weekly chart shows that the GS share price has been in a remarkable bull run in the past few years. It crossed the key resistance point at $367.74 in December last year. This was an important level since it was the highest swing in November 2022. 

Goldman has constantly remained above the 50-week and 100-week moving averages while the Relative Strength Index (RSI) has formed an ascending channel. 

Therefore, in the long-term, Goldman will likely continue rising as the management works to focus on its wealth management and cost cuts. My target for the stock is the psychological point at $600.

However, as it has always done, there is also a risk that the stock will retreat slightly on profit-taking.