Market briefing---Matt (slow)
Goldman Sachs---Su (fast)
>> welcome to “world financial report.” i’m matt nesto. let’s walk you through the day that was on wall street, tuesday trade, three red arrows and the dow little changed, down one point on the day. similar declines percentage-wise for the s&p and the nasdaq down .4%. on to the bond markets we go, more gains there. our top story, goldman sachs said first-quarter earnings almost doubled, sparking an early rally in financial stocks, emphasis on the word early. the third largest securities firm boosted revenue on a stronger-than-expected surge in trading revenue. su keenan has a wrap of the results and the day’s trade.
>> the rally didn’t last for long but much of the tension on this report, goldman chief executive officer henry paulsen controlled expenses and exploited price swings to boost revenue 47% leading to a 95% jump in net income. earnings of $2.50 a share were far ahead of analysts’ forecasts. revenue rose 42% to almost $6 billion with 1/3 of that coming from trading in currencies and commodities. the gains in those groups. investment banking gains surged 63%. stocks trading almost tripled and last month, the c.e.o. said a global economic expansion is helping the firm raise money for companies and advise on more mergers. anton schutz ofmenton capital advisers runs the burnham financial services fund holding 25,000 goldman shares and he says goldman is hitting on all cylinders and leading in mergers and acquisitions.
>> they’ve retained strong leadership. we’ve seen half a trillion of global m&a year to date so far and they’re clearly the leader and very important with a strong economy and low interest rates, great environment for m&a.
>> rivals morgan stanley, lehman brothers and bear stearns all beat analysts’ expectations by a wide margin when they reported last week. with goldman’s earnings, the brokerage firms had combined net income of $3.55 billion in the last quarter. guy moszkowski, analyst with merrill lynch said there is no question that brokerage firms are in a sweet spot.%
>> if you add together the equities and m&a side, what impressed us about the results was that the revenues were in line with the fixed income side which helps dampen one of the concerns that people have had about goldman which is that when eventually fixed income close and there’s no sign of that happening here, but when eventually that happens and the equity side gets better, it’s pretty clear that at goldman at least, the wherewithal is there to offset that eventual decline in fixed income.
>> some analysts are caution on goldman’s ability to sustain this earnings growth. r.n.c. genter capital management does not see the stock going higher.
>> this is as good an environment as it gets to make money on spreads that are easy to do in the fixed income market so the abilityr ability to have that repeatable and predictable will be difficult.
>> goldman ended the session with only a nine-cent gain, as you know.
>> interesting day for brokers in general and goldman sachs. thank you very much, su. also an interesting day, folks, if you’re a utility investor. aside from college basketball and miserably cold weather in the northeast, march is likely to be remembered for many things this year including a selloff of nearly 6% since march 1 of the dow jones industrials, of course, that is, unless you own utility stocks. looking at a couple of charts i put together, a longer term perspective, the dow utilities versus the s&p 500 over the past two years. guess who’s leading? s&p 500, the orange line here down 3.5% from where it was two years ago. the utilities down 9%. this is where it gets interesting, folks. this is a three-month chart. the orange line again is the s&p 500. this is that 6% dive we’ve been talking about and the utilities, as you can see, holding strong in the face of uncertainty. they are still up 4.2% over the past two months and we have now seen the s&p slip negative during that period of time. my mother used to say, be careful what you wish for, it might come true. what you see here is the dividend yield on the utilities index versus the actual share price of that index. the white line is the price, the orange line is the dividend yield. note the dividend yield here, up over 6.5%, falling steadily over the past 18 months to where it is now at 3.5%. moving your eyes to the left, you notice the last time that the dividend yield of the utility index was at 3.5% was mid 2000 to 2001, look up, what did the stock do when the difend was there? keep an eye on the dividend yield. it’s supporting utility stocks now but the price of that index and yield of that index, as you know, move in opposite directions. our next guest expects stocks to keep falling for the next few months. we’re going to talk to franklin morton, senior vice president and portfolio manager at ariel capital management to learn which stocks you buy under such a precipitous forecast.
