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03 May 2018

Goldman Sachs Group: Overview and Analysis

Goldman Sachs Group is an American multinational financial services company. Goldman Sachs was deeply involved in the subprime mortgage crash that contributed to the Great Recession of 2008. The company was subsequently bailed out by the U.S. Treasury.

Goldman Sachs disclosed in January 2016 that it had agreed to pay a fine totally $5.06 billion relating to mortgage bonds that it sold between 2005 and 2007. On January 20th, Goldman missed earnings by a whopping $2.27 a share. These developments set the stage for GS to reach a 2 ½-year low on January 21st. This caused the 50-day moving average on the weekly chart to dip below the 200-day moving average from mid-August through December, which was unusual for large American multinational financial services stocks during this timeframe.

At the very time the 50-day moving average responded in this way, the stock itself was beginning to rise due to a positive banking environment, beating street expectations on earnings by $0.68 on July 19th and the election of Donald Trump in November. Trump’s policies on financial deregulation were seen to be positive for the financial sector. The entire market triggered overbought signals through various indicators leading into January 2017, causing the uptrend for GS to flatten out. In April 2017, GS missed consensus earnings by $0.16, sending the stock into a sideways range through September 2017.

Q3 2017 earnings released in October beat expectations by $0.14, Q4 2017 earnings released in January yielded a loss of $5.51 per share and Q1 2018 earnings released in April 2018 beat the street by $1.37 per share. This mixed bag of results caused much volatility in the price of GS heading into May 2018. The $5.51 loss was related in part due to a large tax expense from new tax legislation. The size of the loss is related to the repatriation tax, which penalizes foreign earnings.

Future Stock Performance

The bearish divergence on the MACD suggests that the uptrend for this stock is about to end. Goldman Sachs is an example of a company that undergone a serious scandal but has begun to recover from it. GS is generally considered a buy or a hold as of early May 2018. With a price to equity ratio of 26.46, GS has a higher PE ratio than its competitors in the sector, but its potential for higher earnings justifies this.