Goldman Sachs Shines in 2024, Outperforming Peers Amid Market Changes

Goldman Sachs’ stock (NYSE: GS) has experienced remarkable growth, increasing by 57% year-to-date. For comparison, its competitor Morgan Stanley (NYSE: MS) has seen a gain of 41% during the same timeframe. Recent stock increases follow the U.S. presidential election, which resulted in Donald Trump winning a second term in office. Investors anticipate that the Trump administration may push for deregulation, leading to a less strict approach to bank oversight than under the Biden administration. This shift could improve banks’ revenues through higher deal volumes, more lending, and potentially lower compliance costs, ultimately boosting profits. Trump has also advocated for tax cuts, which may further enhance the financial health of Goldman and its clients. With Republicans securing control of the Senate, sentiment towards the banking sector remains optimistic.

Goldman’s Q3 results demonstrated solid performance, reporting earnings of $8.40 per share. This significantly surpassed analyst expectations and marked an increase from $5.47 during the same quarter last year. Net revenues totaled $12.70 billion, a 7% rise compared to the previous year. This growth stemmed from the Global Banking & Markets segment—including investment banking and sales & trading—which generated revenues of $8.55 billion, up 7% year-over-year. An uptick in debt underwriting, particularly for leveraged finance and investment-grade issues, propelled investment banking activity. Equity underwriting also rebounded, bolstered by secondary offerings. Revenue from equities rose by 18% year-over-year to $3.50 billion, largely due to increased revenues in equities intermediation. Additionally, Goldman’s Asset & Wealth Management division continued to thrive, with revenue climbing 16% from last year to reach $3.75 billion, supported by greater equity investment gains compared to net losses from the prior year and an uptick in fee-based revenues.

Goldman Sachs’ stock performance over the last four years has shown considerable volatility, often mirroring the movements of the S&P 500. Return figures included a high of 48% in 2021, a decline of 8% in 2022, and a modest rise of 16% in 2023. Contrarily, the Trefis High Quality (HQ) Portfolio, which includes 30 stocks, has consistently outperformed the S&P 500 each year in this timeframe. This portfolio’s performance highlights its ability to provide superior returns with lower risk, unlike the ups and downs experienced by GS. As the macroeconomic environment remains uncertain, characterized by discussions of rate cuts and geopolitical tensions, the question arises: will Goldman face another underperformance scenario similar to 2023, or could it achieve significant growth in the next 12 months?

Recently, Goldman has adapted its strategy by exiting its unprofitable consumer-lending business, which burdened the company with high customer acquisition and technology costs. Instead, it plans to concentrate on its strengths in mergers and acquisitions (M&A), trading, and wealth management. The Federal Reserve’s recent interest rate reductions may foster more deal-making activity, making financing easier and cheaper. Furthermore, Goldman’s debt underwriting segment stands to benefit as companies look to refinance existing debt at these lower rates.

By enhancing its fee-based revenue streams within the wealth management sector, Goldman could establish more stable income sources, which may cushion against volatility from its trading and M&A activities. Although the firm is distancing itself from the consumer lending market, it still aims to serve companies that provide services to retail customers. For example, Goldman is working with the robo-advisory firm Betterment to offer investment portfolios to its customers for a fee. Currently, we assess Goldman stock at $486 per share, which sits below its market price. For a comprehensive analysis of Goldman Sachs valuation, including a comparison with its peers, please refer to our detailed report.

[1] Returns as of 11/13/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.