Goldman Sachs was one of the top performing banks after Trump won the elections in 2016. What is referred to as the Trump Bump has recently been fading quickly.
Goldman Sachs’ shareholders have seen the stock dive more than 30% from recent highs we saw back in March. The sell off is partly due to the overall market falling, as well as specific events for Goldman Sachs. The move lower has been intensified over past month as the Malaysian 1MDB scandal has flared up. Reputational costs can be large. Lately, even the Fed has been getting increasingly interested in what actually happened.
The stock has practically erased the entire Trump Bump move.
Goldman Sachs CDS has shot up lately, partly as the broader risk off has resumed as well as the company specific situation.
Implied volatility has moved higher as well and trades around the 30 level. Options are pricing almost 2% daily moves for the stock.
Term structure is trading more stressed than we have seen it trade in a long time. Orange represents how the curve looks today, with short term volatilities elevated compared to longer term volatility. Green was how it looked 3 months ago. Part of the reason is of course the general risk off mode we have seen in overall markets.
The spread versus the financials ETF, XLF US, has collapsed lately. The normalized spread is trading very far out on the normal distribution chart.
It all looks so bearish when you read about financials and especially Goldman Sachs, but we are seeing the stock approach the long term weekly trend line from late 2008. Note the break up move higher in 2016 started slightly lower than we are seeing the stock trade at currently.
Catching falling knives is a strategy we dislike, but could this potentially turn out to be a blood on the street bounce set up?
Source: charts by Bloomberg