One obvious result of the coronavirus has been the widening chasm between Wall Street and Main Street. It's evident from a variety of measures such as stock prices at record highs, while the economy has 20 million less jobs than in January 2020. Another data point is the earnings report from Wall Street-centric banks like Goldman Sachs
Inside the Numbers
In Q4, Goldman Sachs earned $12.08 per share which was significantly above expectations of $7.47. Revenue came in at $11.7 billion which was also well above expectations of $9.9 billion. Two of the biggest sources of this beat were equities which were 40% higher than last year contributing $2.4 billion. Investment banking revenue was also stronger than expected at $2.61 billion vs estimates of $2.15 billion.
The strong performance of equities and investment banking is not surprising given the bull market in stocks, active M&A markets, and strong IPO market. Many of the banks that had reported earlier also had a strong performance from their trading and M&A divisions. One part of Goldman which did fail to meet expectations was fixed income which came in at $1.9 billion slightly below estimates of $2.1 billion.
Stock Price Outlook
Goldman Sachs' stock was an outperformer in 2020 relative to other banks with an 11% gain, while the XLF was down 4.3% for the year. So far in 2021, both Goldman Sachs and XLF are essentially flat after giving up early gains in the past week.
It's had to imagine what would stunt Goldman's momentum, other than the economy improving faster than expected which would lead to the federal government pulling back from more stimulus, and the Fed hiking rates. This seems unlikely as the pace of vaccination is slower than expected, and there may be some bottlenecks with vaccine production in the coming months. Additionally, there are increased fears about the new variants of the coronavirus which could be more lethal and contagious than the initial version.
These developments imply that this outcome is less likely. However, another catalyst could further boost Goldman. There's increasing chatter that Democratic senators like Krysten Sinema of Arizona and Joe Manchin of West Virginia may not support President Joe Biden's $1.9 trillion coronavirus package. This would throw another wrench in the improving economy thesis and lead the Fed to double-down on its efforts to support the economy. This would be bullish for Wall Street, bearish for Main Street, and likely lead to more record-highs for Goldman Sachs.
