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Goldman Sachs (GS +1%) experiences a relatively muted response today to its solid top and bottom-line upside in Q2, alongside a 9% bump in its quarterly dividend. Shares of the investment banking giant trended roughly +24% higher since last quarter, putting Q2 results under a microscope. As such, GS was prone to higher scrutiny, making a slimmer earnings beat compared to Q1, slowing revenue growth across many divisions, and general uncertainty over near-term economic conditions enough to keep investors from reacting more enthusiastically today.

• That is not to say that Q2 results were not still impressive. GS delivered double-digit growth across its two primary divisions -- Global Banking & Markets (GBM) and Asset & Wealth Management (AWM) -- following the sale of its consumer business, GreenSky, this past March, supporting a 16.8% jump in total revenue yr/yr to $12.73 bln, a mild acceleration from the +16.1% delivered in Q1. Adjusted EPS surged by 180% yr/yr to $8.62 as GS lapped dismal results due to GreenSky and lackluster investment banking and trading activity.
• GBM continued to expand by double-digits in the quarter, increasing by 14% yr/yr to $8.18 bln. Sequentially, revenue contracted by 16%, underpinning a moderate deceleration in Investment banking fees and Equities revenue. Still, activity in Debt and Equity underwriting remained robust. CEO David Solomon was optimistic that the economy is amid the early innings of a recovery in M&A, which would provide a tremendous lift to GBM revs.
• Like last quarter, AWM's growth rate outpaced GBM, delivering a 27% bump in revs yr/yr and 2% sequentially, underscoring a healthy market as Equity investments, primarily real estate, boasted substantial gains compared to net losses in 2Q23, which coincided with the regional banking crisis. An energetic market also lifted AWM's Management and other fees as GS benefited from an uptick in average assets under supervision.
• Since GS does not typically issue formal guidance, its remarks on the operating environment carry meaningful weight. Mr. Solomon touched on similar headwinds from the past couple of quarters, such as a high level of geopolitical instability. Additionally, inflation has proven stickier than initially thought. However, Mr. Solomon was upbeat on the U.S., which he stated remained relatively constructive, with markets continuing to price in a soft landing as the economic growth trajectory improves.
  • GS also briefly discussed AI, stating that the proliferation of the technology across the corporate world should bring considerable financing needs, fueling demand for GS's services.

The main takeaway is that GS's Q2 results carried over much of last quarter's upward momentum, but not at the same clip. When considering the impressive rally shares of GS embarked on over the past three months, today's muted reaction is not overly surprising. Still, after letting go of its consumer business with the sale of GreenSky, GS can concentrate on what separates it from other financial institutions while reducing its risk to the consumer side of banking, which endured some turbulence in Q2, putting it in a healthier position to keep revenue growth sprightly even as the near-term future remains hazy.