The Federal Reserve won't make any changes to interest rates this week, keeping them at the current high level. The only news expected from the Fed's meeting is an announcement that it will reduce the amount of money it's withdrawing from its holdings. Despite strong inflation, the Fed is holding back on rate cuts until it's sure inflation is under control. The market now expects only one small rate cut by the end of next year.
Rising bond yields are putting pressure on stocks, and, according to Goldman Sachs, once the 10-year Treasury yield surpasses 5%, it could spell trouble for equities. Historically, higher yields have correlated with weaker stock performance. The current yield of 4.67% suggests the market is in an "optimism phase," but as yields approach 5%, investors may shift towards bonds, leaving stocks vulnerable.
The stock market is expected to gain 2% by year-end, as earnings reports show strong revenue and earnings beats. Companies are managing inflation by passing on limited price increases and maintaining margins. Interest rate concerns have subsided, and earnings growth is now the focus. While earnings growth projections are low, they could be exceeded, potentially boosting the market further. Companies are also considering altering service terms instead of raising prices to maintain market share.
Goldman Sachs has bounced back after a rough year, thanks to a focus on its core banking and trading operations. They've shed some consumer businesses that were costing them money. The bank's CEO has been praised for making these changes. Other banks like Morgan Stanley are also expected to do well, driven by the strength in the stock market. However, banks as a whole may struggle with lower interest rates.
Goldman Sachs' first-quarter results exceeded expectations, driven by a surge in trading and investment banking revenue. Fixed income and equities trading, as well as fees from debt and equity underwriting, all increased significantly. The bank's asset and wealth management division saw solid growth, although it slightly missed expectations. Goldman remains heavily reliant on Wall Street activities for revenue, but its emphasis on asset and wealth management is a key area for future growth.
Goldman Sachs is promoting Carey Halio, its head of strategy and investor relations, to global treasurer. Effective June 1st, Halio will be responsible for managing the bank's over $1.6 trillion balance sheet. She will report to CFO Denis Coleman and oversee a team of 900. Philip Berlinski, the current global treasurer, is leaving to become co-COO of Millennium Management.
