What: Goldman Sachs (NYSE:GS) has been the weakest performer out of the major US banks this year, however things could be about to change for this Investment bank.
Firstly, the recent rise in US Treasury yields, is very good news for investment banks’ fixed income units, particularly Goldman Sachs', which suffered a heavy decline in profit for the second quarter of this year. US 10 – year Treasury yields have risen some 14 basis points since tanking on Friday, and the expectation is for further gains in the coming weeks. This is particularly relevant for Goldman Sachs, since the short-term correlation between the bank and 10-year US Treasury yields is a whopping 93%.
Secondly, global banks along with insurers have seen expectations for 2017 lifted with upgrades to earnings outweighing cuts by the largest margin since 2009, which should also benefit the share price of the overall banking sector.
How: As you can see in chart one below, Goldman has moved in line with the Treasury yields for most of this year, in the last two months the correlation between Goldman’s stock price and Treasury yields has been nearly 80%, thus, where Treasury yields go, so too, it appears, does Goldman Sachs’ stock price. If we see a continued recovery in Treasury yields, Goldman may play catch up to its peers, as you can see in chart 2 below. Goldman Sachs has been the weakest performer vs. Citi (NYSE:C), JPMorgan (NYSE:JPM), and Bank of America (NYSE:BAC), which has been the top performer out of the major US banks.
Goldman Sachs share price and 10 year US Treasury yields
US banks relative performance
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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