Goldman Crushes Earnings, Retail Sales Impress, Tesla Lays Off 10% of Workforce, and Apple Removes Messaging Apps From China App Store
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By: Alex Nahigian , Ryen Fitzwater , & Cameron Morgan ?
In this week's rundown, we analyze major events from this past week, including taking a deeper look into Goldman Sachs’ impressive earnings report, strong consumer spending despite inflation, mass Tesla layoffs, and digital controversy on the Chinese App Store.
What You Should Know Going Into Your Week
*indicates topic will be discussed further
Trading, Investment Banking fuel Goldman’s Earnings Win
Goldman Sachs reported earnings last Monday, topping analysts’ expectations with much better than anticipated profit and revenue. Goldman’s earnings win was predominantly fueled by trading and investment banking initiatives.?
Here’s Goldman’s earnings report by the numbers via CNBC. Earnings per share were reported at $11.58, vs. $8.56 expected, according to LSEG, while revenue came in at $14.21 billion, vs. $12.92 billion expected. The bank also said profit jumped 28% to $4.13 billion from the year-earlier period, thanks to a rebound in capital markets activities. Revenue rose 16% to $14.21 billion, topping analysts’ estimates by more than $1 billion.
CNBC reported that Goldman’s fixed-income trading revenue rose 10% to $4.32 billion, topping the StreetAccount estimate by $680 million, thanks to a jump in mortgage, foreign exchange, and credit trading and financing. Equities trading climbed 10% to $3.31 billion, about $300 million more than expected, on derivatives activity.
Investment banking fees surged 32% to $2.08 billion, topping the estimate by roughly $300 million, driven by higher debt and equity underwriting.
Goldman CEO, David Soloman, said that “it’s clear that we’re in the early stages of a reopening of the capital markets.” And Goldman has taken full advantage of improving market sentiment over the first third of 2024.?
MUCBC is looking forward to visiting Goldman Sachs this week at their headquarters in New York City and learning so much more about the company's reputable success and impressive growth.?
Consumer Spending Stays Resilient Despite Inflation
The Commerce Department reported last Monday that retail sales increased by 0.7% in March as consumers stayed much more resilient than expected, despite rising inflation.?
Per CNBC, the Dow Jones consensus forecasted a 0.3% rise according to Census Bureau data. The consumer price index increased by 0.4% in March, coming in higher than the Wall Street outlook. However, strong retail sales communicated that consumers more than kept up with the pace of inflation, which ran at a 3.5% annual rate for the month, below the 4% retail sales increase.?
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Here’s the breakdown by the numbers. Excluding auto-related receipts, retail sales jumped 1.1%, also well ahead of the estimate for a 0.5% advance. The core control group, which strips out several volatile measures and is in the formula to determine gross domestic product, also increased by 1.1%. In addition, the biggest growth area for the month was online sales, up 2.7%, while miscellaneous retailers saw an increase of 2.1%.
As mentioned, the consumer has been resilient, but high inflation continues to be the key macroeconomic headwind preventing monetary policy action. MUCBC had the unbelievable opportunity this week to host Chief Investment Officer of KeyBank, George Mateyo , who emphasized that “inflation is not going back to where it was pre-pandemic.” Mr. Mateyo also believes that the Fed is “confused” in regard to the further uncertainty surrounding policy change.?
The probability of a June rate cut has plummeted, with the CME FedWatch Tool now citing just a 16.2% chance, down almost 40% from just two weeks ago. As the Fed aims to get inflation back to its 2% target, Mr. Mateyo remarked that “if the Fed doesn’t cut in July, we likely won’t see a cut until after the election,” as the Fed doesn’t want to get involved during the build-up to the presidential election. In addition, Mr. Mateyo added that we also “wouldn’t see a policy shift in an election year” in terms of altering that target 2%.
The next couple of months will be pivotal for the broader macroeconomic landscape, as the Fed has made it clear they want to cut rates, but like Mr. Mateyo said to us, “will the markets let them?”?
On behalf of MUCBC, we would like to thank Mr. Mateyo again for taking the time to speak with the club. His insights were invaluable and simply brilliant. Thank you, Mr. Mateyo!
Tesla Lays off 10% of its Global Workforce?
Tesla's restructuring efforts have intensified with news of job cuts surpassing 10%, climbing up the food chain, even to the executive level. Senior Vice President Drew Baglino and Rohan Patel, the vice president of public policy and business development, have departed, with Baglino resigning after an 18-year tenure at Tesla.
The company's recent challenges include failing to meet vehicle delivery expectations, marking its first quarterly decline in four years. Analysts predict potential sales shrinkage for the year due to the slow output of new models like the Cybertruck and a pause in product launches until late next year.
In an email to staff seen by Bloomberg News, Elon Musk cited the necessity for cost reductions and increased productivity as Tesla gears up for its next phase of growth. The company has doubled its workforce over three years, ending 2023 with 140,473 employees. Musk pointed out role duplication amid rapid global expansion as a key reason for the layoffs. Despite the ongoing challenges, Tesla has weathered similar storms before. This specific downturn in share prices between September and December of 2022, with a staggering 148% decrease, soon recovered the following year.
Following the Musk announcement, Tesla's shares fell, compounding a year-to-date decline of 31%, making it one of the worst performers in the S&P 500 Index. Employee concerns over job security have been mounting since earlier this year, with some managers being asked to assess the necessity of each position. Additionally, Tesla hinted at moving away from merit-based equity awards as part of its annual performance reviews.
The slowdown in the EV industry has impacted Tesla and its competitors alike. Companies such as BYD Co. have witnessed significant declines in electric vehicle deliveries, while others like Volkswagen AG and General Motors Co. have encountered delays or cancellations of EV projects due to consumer hesitancy over high prices and infrastructure limitations.
Apple Pulls WhatsApp, Threads From China App Store?
Apple announced on Friday that it has pulled WhatsApp and Threads from the App Store in China, following an order from the Cyberspace Administration of China to remove the apps due to national security concerns. Apple responded with a statement saying that they are “obligated to follow the laws in the countries where [they] operate, even when there is disagreement.”
The announcement stems from a long history of tension between the two countries regarding restricted access to content. Despite such quarrels, WhatsApp and Threads have historically been permitted in China through the App Store, leaving some users in slight shock by their removal. And while these apps are not the most popular in China, their removal reduces users' options for communication outside the country.
Alongside this announcement, Apple has initiated efforts to diversify its supply chain outside of China. In the near future, we can expect operations to expand to countries such as India and Vietnam.
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Weathering Wall Street references CNBC and Bloomberg for research.