They say you are a reflection of the company you keep. That’s no less true for Goldman Sachs, which has rekindled its relationship with the rich. 

After a U-turn away from a nascent venture into consumer banking and redoubling its efforts on banking for wealthy clients, the Wall Street juggernaut announced stellar results in its first-quarter earnings report on Monday.

Wealth Makes Health

CEO David Solomon told investors the bank has decided to “play to our core strengths.” While that may feel like a rosy way to hand-wave at some costly departures from consumer banking — Goldman completed its sale of consumer-lending unit Greensky for reportedly just a third of what it paid to acquire it less than two years ago — the results speak for themselves. In the first three months of the year, Goldman scored a 16% jump in revenue and $4.1 billion in net income, a 28% rise year-over-year and nearly a full billion dollars more than the consensus Wall Street expectation. It was enough for Oppenheimer analyst Chris Kotowski, in a note to clients, to dub the results “a near-perfect print.”

Underlying the success was its trading unit, which generated roughly half the company’s revenue in the quarter. And while analysts expected a performance dip for both equities and fixed-asset trading, both units saw revenues increase by 10%, lifted by strong performances in credit, mortgage, and currencies trading.

Meanwhile, Goldman’s investment banking unit posted its best quarter in two years, aided by some broader economic tailwinds and trends:

• Total global deal value for mergers and acquisitions surged 35% in the first quarter, compared to a dismal 2023, according to Dealogic. Meanwhile, the number of deals completed worth at least $10 billion more than doubled, The Financial Times reported.
• Those trends propelled Goldman’s investment unit to $2.1 billion in revenue, a 32% leap from a year ago, and recent strong public market debuts by Astera Labs and Reddit offer plenty of optimism for more momentum.

“Where we stand today it’s clear that we’re in the early stages of reopening of the capital markets,” Solomon said.

Piqued My Interest Rate: Goldman and its big bank brethren still have to contend with higher-for-longer interest rates. But, so far, the Fed’s stubbornness has been a mixed bag. While higher rates have allowed banks to charge more for loans, passing the costs to depositors, higher-for-longer could force banks to get competitive and pay up for high-value deposits. Elevated rates are also likely to eat into fee income from debt issuance. Last week, JPMorgan, Wells Fargo, and Citibank each posted better-than-expected revenue and net income results but also warned that higher-for-longer rates will soften core lending income.

Teachers are trying everything to keep students off their phones, but now Zuckerberg wants to plug them into a VR headset for pedagogical reasons.

Meta announced a subtle strategy shift for its VR metaverse ambitions on Monday, unveiling a new educational product for students as young as 13, with Bloomberg reporting it’s targeting this fall for its classroom debut. For teachers who have to beg, steal, or borrow glue sticks for their students, the idea that their schools might furnish them with VR headsets might seem a little out there.

Every Day’s a Metaverse Day

It’s easy to forget about the metaverse, the trend that Facebook threw its considerable bulk behind when it renamed itself Meta. Any buzz – and there wasn’t much – was subsequently drowned out by the dawn of generative AI. That doesn’t mean Meta stopped shoveling billions of dollars into the idea. At last count, Meta has incurred $25 billion in metaverse-related losses since its big 2022 rebrand. To cap it all off, year-end data suggested sales of VR and AR headsets were way, way down.

In a memo in early 2023, Meta said it was targeting teens aged 13 and up as early adopters. Last fall, it shifted the emphasis in its metaverse marketing to showcase its VR tech as a vocational tool for training — so its new zeal for getting VR headsets into schools is like a combination of those two drives:

• Bloomberg reports that Meta is devising a specific metaverse product for schools as a subscription service. Meta offers a subscription VR service to businesses, called Quest for Business, which lets companies use a handful of Meta Quest VR headsets for a subscription fee.
• The idea behind the educational product is that students could use the headset to immerse themselves in a virtual version of Ancient Rome (something Mark Zuckerberg emulates by naming his children after Roman emperors), walk with dinosaurs, or visit virtual versions of real-life museums.

Economics 101: Of course, most schools may not have a lot of cash to throw at subscriptions for VR headsets — so is Meta banking on private schools? In an interview with Sky News, Meta global affairs president Nick Clegg was carefully vague (remember, he used to be a politician) about price. “Every time you have new technology, whether it’s a calculator or a whiteboard, that becomes mainstream [sic] education over time, you’ve always got an early adopter issue, which is that the technology tends to be more expensive at the beginning than it is at the end as volume ramps up,” said Clegg, adding: “Therefore it’s easier for schools and colleges with more means to use the technology earliest. All we can do is try and make the technology as affordable as we can.” With VR sales dipping elsewhere, that should be simple enough.

Every bit of good economic news seems to come with a Jerome Powell caveat these days. 

The Commerce Department reported Monday that retail sales rose 0.7% month-over-month — about double what many economists had predicted. Year-over-year, that’s a 4% jump. 

Always Be Spending

The figures aren’t adjusted for inflation, so even as prices and borrowing costs remain high, it’s as Bankrate’s Ted Rossman told the Associated Press: “Americans are actually buying more stuff.” 

• Sales at general merchandise stores rose 1.1%, while online sales were up 2.7%. Sales at restaurants and other eateries — a key indicator of household finances — rose 0.4%. The increased activity was fueled by rising wages and a strong jobs market, which averaged 276,000 new employees per month in the first quarter of the year.
• However, plenty of sectors experienced dips. Motor vehicle and car part sales slipped 0.7%, likely as a result of insurance premiums surging 22% in the past year. Furniture sales declined 0.3%, as mortgages remained expensive and home purchases fell. Receipts for electronics, clothes, and hobby-related items also dropped, highlighting how many consumers are scaling back on non-essentials.

As a result of the good-ish news, Morgan Stanley economists raised their GDP growth estimate for Q1 to 2.7% from 2.4%, Reuters reported.

Are We There Yet? By the end of last year, Powell’s Fed seemed a little more optimistic, hinting that a rate cut this summer — or even by the spring — wasn’t entirely out of the question. Well, now we have our answer: No. Even though many continue to feel pain at the pump and the grocery store, spending and inflation data remain too strong to warrant cutting rates, which currently sit between 5.25% to 5.5%. The most realistic hope is that rate cuts begin in September. We’re crossing our inflation-adjusted fingers and toes.