Equities Outlook – Banking sector earnings under the microscope

So far, the results from the earnings season sent mixed signals to the market, as last Friday JP Morgan, Citigroup, Bank of America، و Wells Fargo reported better than expected results yet issued recession warnings. In this report we focus solely on the earnings releases from two of the largest players of the banking sector, namely Goldman Sachs و Morgan Stanley. We conclude with a technical analysis of Dow Jones index (#US30) sharing our views for the future development of its short-term horizon.

Goldman Sachs earnings flop

Yesterday, Goldman Sachs (#GS) delivered its fourth quarter earnings report and in the grand scheme of things the results were disappointing. #GS shares fell by more than -6% intraday and closed the day around the $350 mark. More specifically, the banking giant missed both forecasts of its earning per share و revenue metrics. Earnings were expected to ease from $8.25 of the previous month to $5.56 per share, yet the actual EPS for Q4 fell substantially lower to $3.32 per share. The decline recorded was close to 60% when compared to the previous quarter’s performance. When it comes to the Revenue figure, analysts expected the bank to report a decline in revenue compared to the previous quarter, but the bank missed expectations, reporting an even bigger drop. Q4 revenue expectations were seen at 10.8B but the actual figure was reported at 10.6B. Goldman Sachs CEO David Solomon outright acknowledged the disappointing results and stated, “after nine straight quarters of double-digit returns, fourth quarter performance was certainly an outlier”. Furthermore, he commented that the results were severely impacted by several near-term challenges, some being the slowdown in economic activity suppressed by high interest rates و high inflation. Regarding the fall in revenue, the CEO commented that underwriting volumes remained extremely muted in the past quarter and the bank’s equity investment portfolio faced harsh challenges after a volatile year, dragged lower by underperformance in asset & wealth management division. Loan loss provisions and unexpected rise in expenses put extra pressure on revenue margins, making the situation worse. Lastly, the bank announced in January that it slashed 4,000 jobs, accounting for a 6% reduction, and also cited that compensation expenses decreased, mirroring the effects of bonus cuts that took place in this past quarter. Overall, it has been a rough quarter for #GS but nonetheless the CEO remains optimistic about the future of the bank and remains committed at delivering value to shareholders.

Morgan Stanley delivers solid results

In contrast to its competitor, Morgan Stanley (#MS) saw its share price rise by nearly 6% during yesterday’s session after the release of its fourth quarter earnings report. The results showcased the bank’s ability to navigate a challenging economic environment, as both its earnings per share و revenue metrics outperformed the market’s consensus. More specifically, the adjusted EPS figure for Q4 was reported at $1.31 beating expectations of $1.29, yet it marked a slowdown when compared the previous quarter. Similarly, the revenue figure also exceeded analysts’ estimates, as it was reported at 12.7B beating expectations of 12.5B. Nonetheless, the revenue figure also recorded a slowdown in Q4 when compared to the previous quarter’s figure. Net interest income was as expected a strong suit for the bank, increasing 52% from the previous year, driven higher by the benefits of increased rate environment, created from the Fed’s aggressive monetary policy decisions. Furthermore, total deposits from clients rose by 6% driven by increased demand for the bank’s savings offerings managed by the wealth management division. However, the clear winner for the bank was its trading division whose generated revenue helped offset the slack of investment banking and asset management divisions. The bank’s CFO commented “The strategic investments we have made over the last decade have paid off. Wealth Management had a record year and Fixed Income had its strongest performance in over a decade”. Lastly, James Gorman the bank’s CEO acknowledged that uncertain times lie ahead, but nonetheless stated “with a constructive outlook and a proven track record we’ve delivered thus far, we fully expect to achieve our goals over time.”

تجزیه و تحلیل فنی

#US30Cash 4-Hour Chart

Looking at #US30Cash 4-hour chart we observe the break below the ascending trendline, initiated on the 6  of January of 2023 and the price action of the index edging closer to the 33800 (S1) support level. We hold a sideways bias for the index being confined between the 33800 (S1) support base and 34550 (R1) resistance level. Supporting our case is the RSI indicator below our 4-hour chart which currently registers a value of 46 showcasing slight indecision surrounding the index after its retracement. Should the bulls control the direction of the index we may see the break above the 34500 (R1) resistance level and the price action rising closer to the 35000 (R2) resistance barrier. Should on the other hand the bears take initiative of the direction of the index may see the break below the 33800 (S1) support level and the subsequent move closer to the 33200 (S2) support base.

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