💪 Goldman showed the rest up

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Hi John, here's what you need to know for July 19th in 3:11 minutes.

❄️ Iceland isn’t actually that icy, Greenland isn’t really that green, and – believe it or not – Stablecoins might not be that stable. So join Dustin Teander for Navigating The World Of Stablecoins on Wednesday, and find out what to really expect on your next big trip to crypto-land. Grab your free ticket

Today's big stories

Goldman Sachs and Bank of America reported strong quarterly resultsInvestors are worried that a recession is imminent, so Goldman Sachs has predicted what that could mean for stocks – Read NowDeliveroo gave a completely unappetizing trading update

Best For Last

What’s Going On Here?

Goldman Sachs and Bank of America (BofA) reported strong quarterly results on Monday.

What Does This Mean?

Goldman and BofA were the last of the six big US banks to report results this earnings season, and they’ve rounded us off in style. Let’s get the bad news out of the way first: both Goldman and BofA reported drops – 41% and 47% respectively – in their investment banking revenue compared to last year, mainly because dealmaking took a plunge and fewer companies used their services to issue new stock or raise more debt.

Then there’s the good news: Goldman’s bond traders made around $700 million more than analysts expected, helping the bank report a 32% surge in trading revenue after volatile markets “significantly” increased commodity and currency trading volumes too. BofA, meanwhile, saw its net interest income – a key source of revenue – grow by 22% thanks to higher interest rates. So while both banks saw their overall revenue drop, they still came in above analyst expectations.

Why Should I Care?

For markets: Brace yourselves.
Those results might’ve pacified investors for now, but the wider banking sector might have trouble coming its way. For one, bank executives predict borrowing will fall as higher rates put off customers from taking out new loans. And for another, banks are expected to put more cash reserves together in case a recession prevents hard-up borrowers from repaying their debts. That, then, might be why a key index tracking some of the US’s biggest banks has fallen more than the S&P 500 this year.

Zooming out: Home-owning sucks.
Rising interest rates are already hurting the housing industry: data out on Monday showed that US homebuilder confidence fell to its lowest level in two years in July, after suffering its biggest monthly drop since April 2020. You can hardly blame them for feeling down: rising material prices and borrowing rates have pushed the cost of building a house higher than its sale value in some cases.

You might also like: How to forecast the markets better than Wall Street’s been doing.

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Analyst Take

Just How Bad Are Things Going To Get?

Carl Hazeley, Analyst

So far, not so good.

US inflation has risen above economists’ expectations, and investors are worried that the Federal Reserve will take drastic measures.

After all, massive interest rate hikes could tip the economy into a recession.

But since that is a real possibility, it’s worth exploring how a turn for the worst would impact US companies, and, in turn, their stocks.

So that’s today’s Insight: how bad could things really get, and what that means for US stocks.

Read or listen to the Insight here

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Under-Deliveroo

What’s Going On Here?

British-based delivery company Deliveroo gave a disappointing trading update on Monday.

What Does This Mean?

Food delivery companies are in a tough spot: cash-strapped customers are shunning increasingly expensive takeouts, and those that do want restaurant-quality food are more likely to leave the house now that lockdowns are a distant memory. In fact, Deliveroo reported that its customers spent a measly 2% more on its platform last quarter versus the same time last year – a massive slowdown from the 12% increase it saw the quarter before. That’s unlikely to pick up anytime soon, since consumer confidence is only going in one direction as would-be customers get more worried about rising costs. Maybe that’s why Deliveroo cut its full-year transaction growth outlook from 15-25% to just 4-12%, following in the footsteps of rival Just Eat which slashed its own outlook in April.

Why Should I Care?

For markets: Deliveroo’s cost-cutting.
Food delivery companies burn a lot of money in hopes of growing quickly, and lately investors have been more taken by businesses that actually turn a profit. That’s slashed Deliveroo’s share price by 60% this year, meaning it’s now down by around 75% from when the company first went public in 2021. But Deliveroo has a plan to win investors over: it’s confident that tighter cost-controls will help it adapt to the changing economy, and even thinks it could break even in the next two years as its marketing costs eat up less cash (tweet this).

The bigger picture: Do you want an ad with that?
Deliveroo also has another revenue stream up its blue, waterproof sleeve: it started selling advertising slots on its website and app this month, so – shock horror – you might see adverts for your nearest 24/7 gym the next time you order pizza. Mind you, it’s not the first to make the move: rivals Jokr and Delivery Hero have been supplementing their main businesses with ad revenue for a while now.

You might also like: Is Deliveroo a bargain right now?

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💬 Quote of the day

“Every day brings new choices.”

– Martha Beck (an American author)

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🎉 Coming Up This Week…

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🌍 Blockchain, Crypto, and ESG: 5pm, July 19th
👀 Your Guide To Earnings Season: 3pm, July 20th
🎉 Navigating The World Of Stablecoins: 6pm, July 20th
🔥 How To Use Machine Learning For Trading: 12pm, July 21st

🥳 And After That…

🍷 Is Wine The Perfect Recession-Proof Investment?: 1pm, July 27th
♻️ Building A Crypto ESG Framework: 6pm, August 2nd
📈 A Case For DAO Treasury Diversification: 6pm, August 9th
💻 How To Spot The Best Tech Stocks: 6pm, August 16th

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