Thursday, October 15, 2009
Investment Banks drive stock market indices forward!
Today Goldman Sachs, the US Investment Bank, announced that their profits had hit over $3.2bn in the third quarter compared to a year ago. This followed on from Wednesday's numbers showing that JP Morgan Chase had earned $3.6bn net income in the three months to the end of September 2009. This was way better than the analysts had expected and the outcome was that the Dow Jones Industrial Average (DJIA) went above 10,000 for the 1st time in a year. The broadly based rally in stock prices also reflected some very good retail sales numbers and some encouraging figures from Intel. The big question is can this stock market confidence build further taking the DJIA to even higher levels. For what it is worth I would not be too surprised to see some slight fallback in share prices as traders become more cautious perhaps deciding to sell some stock and take some profits. They have after all seen a 50% rise in the main stock market indices since March of this year. So keep an eye on all the key indices which are shown on the front page of the main section of the FT.
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7 comments:
With all things there has to be an eventual decline but the FTSE 100 has hit the 5200 mark so the UK is also showing signs of improvement obviously the interesting thing is Goldman’s Sachs wasn’t a major part of the Dow Jones going over 10000 it was mainly just JP Morgan everyone else didn’t seem to be doing anything amazing and considering JP Morgan is quite a strong company I don’t think JP Morgan doing well is going to maintain confidence for a long period if in general companies that were struggling started to show a long period of stability then maybe confidence would boost the Dow Jones further but I do feel people are still cautious believing this to be a small recovery which may lead to another big decline but that seems unlikely some big players claim the worst is over
I like to add to what I said after watching two intersting videos this is an old video but it was a key event it was the crash of the fourth biggest investment bank Lehman Brother's now i only recently learnt of the huge effect this had on the Dow Jones but in one day there was a 500 basis point loss this was an immense decline and done a blow to the stocks but then we get to October 2009 just over one year on and the Dow Jones has hit the 10,000 mark i think thats an improvement if there ever was one confidence is reviving but of course i believe people should still be cautious because if we look at germany for instance the Chief of the bundesbank says that "the German economy is improving, but its recovery will take a long time" and i think this applies for all main nations who seem to be making a form of recovery its going to be gradual.
Hi Luke,
You make some excellent comments here. It seems unlikely that the recovery will be in one direction. There could be lots of bad news ahead that will act to depress the markets. However, what is clear is that the Investment Banks has been very skilled in re-inventing themselves. They are making vast profits on the back of the new equity/bond issues.
Keep posting!
Kevin
Recently Bank of England Governor Mervyn King said ‘he’s concerned that some banks receiving taxpayer-funded bailouts are too eager to return to investment banking’. In support of Mervyn King the Chief Executive Officer Stephen Hester said Royal Bank of Scotland Group Plc, which has been rescued by the world’s most expensive bank bailout of 45.5 billion pounds, is ‘moving away from the hubris that characterized the last decade’ as it seeks to serve its customers and allow the UK to sell its controlling stake at a profit.
Currently Goldman Sachs have initiated a programme where 10000 Small Businesses is a $500 million initiative that will unlock the growth and job-creation across the United States through greater access to business education, mentors and networks, and financial capital. Investment bank Goldman Sachs is expected to announce a bumper profits, and signal that the sector's bonuses are back just a year. Predicting £14 billion pay and bonus pool this year, 13% higher than in 2007.
JP Morgan led the way with better-than-expected £2.3 billion net income for the three months to September. This is due to the increase in investment bank activity. JP Morgan has also been ranked seventh overall in Universum's first survey to measure the "Top 50 Global Ideal Employers."
Many investor have taken the view that stock markets are recovering in all areas. In this case, investmet banks, having attended strategy into practice talk given by Mr Gerry Beaney, Head of Capital Markets & Partner –Grant Thornton. He would agree with the blog to a degree, from his view that many investment banks have surplus cash that have not been invested due to the crisis. However having seen one ot two companies accouncing profits (i.e. J Sainbury's)indicated the markets are slowly recoverying. As a result, investment bank are willing to invest in stock markets, which would push the stock prices up.
Investment banks would use this situation to encourage clients and investors to invest their stocks in the economy to boost the economy.
I believe that the reality of the economy will be reveal when the government incentives for job creations and purchases of products expire.
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