Goldman Sachs Earnings: Capital Markets Recovery Is Positive, but Trading Is Too Big to Be Ignored

A soft landing for the U.S. economy and recovery in capital markets would be a positive for the majority of Goldman Sachs’ business lines, but the company has a heavy weight to trading that doesn’t always move in the same direction as the economy. Goldman Sachs had a decent 2023, given the uncertainty in the economy and the company’s refocusing on its core investment banking and investment management businesses. 2023 net revenue of $46 billion decreased 2% compared with 2022 and was 22% lower than the unusually strong 2021 result. The fourth quarter of 2023 didn’t showcase particular strength; net revenue was down 4% sequentially as negative seasonality in fixed-income, currency, and commodities trading offset positive seasonality in investment banking and gains on equity investments. For the full year, the company had earnings per share of $22.87 and a return on tangible equity of 8.1%; if unusual items were excluded, return on tangible equity would have been about 10.7%. We don’t anticipate making a material change to our $368 fair value estimate for narrow-moat-rated Goldman Sachs. We assess the shares as fairly valued.