Wall Street Lunch: Goldman Shines After Results

Summary:

• Goldman Sachs reports strong Q1 earnings, helped by a rebound in its core global banking and markets business.
• Tesla to lay off more than 10% of its global workforce, as per a company-wide email sent by CEO Elon Musk.
• Check out Oppenheimer’s picks for buy/sell pair trades in smallcap and midcap stocks.

Listen below or on the go on Apple Podcasts and Spotify

Goldman’s global banking and markets business rebounds in latest quarter. (0:15) Retail sales in March trounce expectations. (2:03) Tesla confirms it will lay off 10%. (4:01)

This is an abridged transcript of the podcast.

Our top story so far

Goldman Sachs (NYSE:GS) turned in stronger-than-expected results, with its core global banking and markets business rebounding, helped by debt underwriting activity.

Q1 GAAP EPS of $11.58 topped the $8.68 consensus and was up from $5.48 in Q4 2023 and $8.79 in Q1 2023. Total net revenue of $14.2 billion, exceeding the $12.9 billion consensus, increased from $11.3 billion in the previous quarter and $12.2 billion a year ago.

Global Banking & Markets net revenue of $9.73 billion jumped 53% Q/Q and 15% Y/Y. Investment banking fees of $2.08 billion climbed 26% Q/Q and 32% Y/Y, driven by debt underwriting, primarily in leveraged finance. FICC revenue of $4.32 billion more than doubled Q/Q and rose 10% Y/Y. Equities revenue of $3.31 billion increased 27% Q/Q and 10% Y/Y.

Asset & Wealth Management net revenue of $3.79 billion slipped 14% Q/Q and increased 18% Y/Y.

Goldman’s results took some of the sting out of JPMorgan Chase’s (JPM) disappointing guidance on Friday. That and strong retail sales numbers for March (along with upward February revisions) helped stocks early on but gains faded through the morning.

The major averages are up. Global equities look little affected by Iran’s attack on Israel.

Emily Bowersock Hill, CEO of Bowersock Capital Partners, says: “Absent a disruptive geopolitical event, such as a broader conflict in the Middle East, the bull market remains intact.”

“Historically, geopolitical shocks cause short-term volatility, not long-term market declines. In this current environment, however, the risk of an extended period of volatility is higher, given the inflationary oil price shocks that may emanate from the heightened tensions in the Middle East.”

Retail sales also lit a fire under Treasury yields. The 10-year Treasury yield (US10Y) rose above 4.65%, a level not seen since November.

Retail sales rose +0.7% in March vs. +0.4% expected and +0.9% prior (revised up from +0.6%).

Core retail sales were up +1.1% vs. +0.5% consensus and +0.6% prior (revised up from +0.3%). Ex-auto and gas sales were up +1.0% vs. +0.3% consensus and +0.5% prior (revised up from +0.3%).

Wells Fargo noted that the measure of core spending rose the most in a year or more, even with the strong revisions to the previous month.

The economics team said: “This is not the sort of spending associated with falling prices and brings upside risk to our 2.3% forecast for Q1 consumer spending,” adding that the figures “tell us not to underestimate this consumer. That’s good for growth, but could be a problem for the Fed trying to cool inflation.”

Looking to active stocks

Microsoft (MSFT)-backed cloud and data security company Rubrik is planning to raise up to $713 million in its IPO. That’s according to Reuters.

The company intends to sell 23 million shares at a price range of $28 to $31 per share. It would be valued at about $5.4 billion at the upper end of the range.

Evercore ISI downgraded Magna International (MGA) to an In Line rating from Outperform. The downgrade was driven by headwinds from Fisker’s (OTC:FSRN) soft performance, which included both the warranty ownership held by Magna in Fisker and lower than anticipated Steyr volume.

Analyst Chris McNally said investors should expect the difficult story for Magna (MGA) to continue for the first half of the year due to Steyr stumbles and earnings hits from Fisker.

And Warby Parker (WRBY) is one of the retailers that may have seen an incremental boost from interest in the U.S. last week on the lunar eclipse.

BTIG analyst Janine Stichter noted that Warby Parker saw a spike in search interest after the company distributed solar eclipse glasses in their stores for free and offered a template on the brand’s website for an eclipse pinhole projector.

In other news of note

Tesla (TSLA) confirmed layoffs of more than 10% of its global workforce in an email sent across the company from CEO Elon Musk. Snippets from the email were spotted by Electrek.

Musk said: “Over the years, we have grown rapidly with multiple factories scaling around the globe. With this rapid growth, there has been duplication of roles and job functions in certain areas. As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity.”

“As part of this effort, we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than 10% globally.”

Musk told the remaining employees that Tesla is developing some of the most revolutionary technologies in auto, energy, and artificial intelligence.

And in the Wall Street Research Corner

Oppenheimer’s technical analyst, Ari Wald, is out with more pair trades for each sector in the small- and mid-cap universe.

Among some of the trades

In Energy,

Buy PBF Energy (PBF) with refiners the best in the sector.

Sell Nabors Industries (NBR), which is hitting a bearish inflection point.

In Consumer Discretionary

Buy Light & Wonder (LNW), buying the dip.

Sell Frontdoor (FTDR), which is rolling over.

In Financials

Buy Jefferies (JEF), buying the dip.

Sell AMERISAFE (AMSF), which is relatively weak.

And in Communication Services

Buy Taboola.com (TBLA), which is testing key support.

Sell Scholastic (SCHL), which is turning lower.

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