Goldman Sachs CEO David Solomon details ‘the big thing to watch’ in markets

Goldman Sachs chairman and CEO David Solomon thinks it would be wise for investors to pay extra attention to the path of corporate earnings in the coming weeks.

“I’m seeing a bit more market volatility — but I think the volatility at this point is what the market is expecting,” Solomon said on Yahoo Finance Live at the company’s 10,000 Small Businesses Summit (video above). “I think you have to look at corporate earnings. And so far, corporate earnings have held up fairly well. But with a tightening economic environment, I think you’re going to see more pressure on corporate earnings.”

Solomon added that the situation is “just math. If we keep the same S&P 500 earnings multiple and corporate earnings are down 10%, you can figure out what the market impact is. So I think the most important thing to keep an eye on is “Keep the next 12 months are corporate earnings. If you study history, a drop in corporate earnings every time we’ve been in this kind of environment is going to be lagging. And that could put a little more pressure on the stock markets.”

David Solomon, Chairman and CEO of Goldman Sachs, speaks at the 2022 Milken Institute Global Conference, in Beverly Hills, California, US, May 2, 2022. REUTERS/Mike Blake

David Solomon, Chairman and CEO of Goldman Sachs, speaks at the 2022 Milken Institute Global Conference, in Beverly Hills, California, US, May 2, 2022. REUTERS/Mike Blake

The market appears to be heeding the less rosy Q2 earnings reports and cautious earnings calls.

According to data from Evercore ISI strategist Julian Emanuel, the stock prices of the companies that have reported second-quarter earnings so far are up 1.3% on average after publishing results. Companies that make both the top and bottom lines (known as “double beats”) are on average 1.3% higher than the five-year average of 0.9%.

Emanuel noted that the positive response from traders comes despite the S&P 500’s average corporate earnings being 12% lower so far.

As for Goldman Sachs, the bank posted a better than feared quarter this week amid strong trading in fixed income and stocks. Goldman reported earnings of $7.73 a share Monday, beating analysts’ forecasts of $6.58 a share.

Second quarter revenue and profits were down 23% and 48%, respectively, as the company was swept up in the industry-wide weakness of investment banking business. And investment banking sales were down 42% from a year ago as companies slowed down deals amid an uptick in stock market volatility amid aggressive Federal Reserve rate hike plans.

Goldman stocks are up nearly 9% this week — a stronger positive reaction than the average above — outperforming the S&P 500’s gain of about 3%.

“So while highlighting the market background, Goldman Sachs trading should benefit,” Glenn Schorr, an analyst at EvercoreISI, wrote in a note to clients. “Book continues to grow (a double-digit year-over-year increase), strategic remixing continues and Goldman Sachs continues to draw some attention as the stock is hovering around book value.”

Schorr reiterated an outperform rating for Goldman stock.

Brian Sozzi is a great editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn.

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