Goldman advances 4% after making correct call on 50 bps Fed cut

• Goldman Sachs stock advances 4% on Thursday.
• Fed's 50 bps cut on Wednesday has rallied stocks severely.
• CEO David Solomon was pushing the 50 bps stance before it was the common view.
• Market appears to like Goldman's exit from consumer business.

 

Goldman Sachs (GS) is a primary winner of the Federal Reserve’s (Fed) interest rate decision on Wednesday in more ways than one. While many other analysts were expecting 25 bps, Goldman kept reasoning toward a 50 bps cut and was proved right.

The Dow Jones Industrial Average (DJIA) hit another all-time high on Thursday after the index rose 1.5% by the afternoon. The NASDAQ surged an astounding 3%.

Goldman Sachs: Right on the money

After taking his bruises from a head-down rush into the consumer banking sphere before deciding to bow out this year, Goldman CEO David Solomon is looking better. 

Goldman has been divesting itself of some large business interests this month, and Solomon and other analysts at Goldman were right on the money with their bet on a 50 bps cut from the Fed on Wednesday.

While most analysts thought that the Fed would seek to calm markets by a more conservative 25 bps cut, Solomon was being quoted a week earlier with statements pushing the 50 bps line. At the time, CME Group data showed that 50 bps was the minority view, garnering a roughly one-third chance of happening.

On September 11, Solomon told CNBC announcers that 50 bps would send a better message to the market due to falling Nonfarm Payrolls (NFP) figures throughout the summer. In early September, the August NFP missed consensus, and prior figures for June and July were revised down sharply.

“There’s a case to be made for 50 based on more softening in the labor market,” Solomon said in the CNBC interview, admitting at the time that there was only a 30% chance of the Fed copying his logic.

But The Wall Street Journal’s Nick Timiraos, often called “The Fed Whisperer”, said last Friday that it was really a tossup between 25 and 50 bps.

On Tuesday, JPMorgan (JPM) was said to be in discussions with Apple (AAPL) to assume operations of the technology company’s credit card offering that was formerly managed by Goldman. 

The report says that the bank is looking to assume the venture by paying less than the $17 billion worth of outstanding balances and changing some of Apple’s stipulations. Apple had announced it was parting ways with Goldman late last year on the joint venture. 

This comes after Goldman was said to be selling its loans to General Motors (GM) credit card holders to Barclays for about $2 billion. Goldman will take a pretax $400 million loss on the transaction. The market seems to love the slimmed down investment bank returning to its primary focus on M&A, as well as wealth management and advisory services.

Goldman Sachs stock chart

Goldman is trading back up above the psychologically important $500 level. The all-time high of $517.26 from July 31 beckons for a further rally. Support comes at $491, the 50-day Simple Moving Average (SMA), and the prior historical support at $471.

The Moving Average Convergence Divergence (MACD) indicator also shows a bullish crossover, which could mean that a new all-time high is in the offing.

GS daily stock chart