18 March, 2008

Investment Banking Earnings start the Rally, Fed rate cut kicks it into Gear

Markets came out to a flying start this morning as Goldman Sachs (GS) and Lehman Brothers (LEH) showed the Street that in fact all is not dead in the world of Investing. Lehman, which was creeping into talk circles of being the next Bear Stearns, showed just how well it can keep itself going with a better than expected quarter.

More of the same came out of Goldman Sachs, which beat estimates again, providing the guiding light for buyers jumping back into the financial sector. The earnings numbers were sharply lower than a year ago at both firms, but both also registered upside surprises on top of beaten down analyst opinions. Lehman earned almost $500Million of $0.81/share vs. the expected $0.72/share. More importantly the company on the conference call downplayed any cash strapped concerns by announcing that Lehman has a strong balance sheet with $30Billion in cash on hand as well as $64Billion in very liquid assets. A very strong foundation that'll keep it afloat, by any measure!

Shareholders and investors rejoiced at the quarter sending depressed Lehman stock up almost 50%. At the other end of Wall Street, Goldman Sachs shares gained 16% to $175, following a better than expected quarter. Goldman earned $1.51Billion, $3.23/share in profit vs. the expected $2.59. Management gave speeches of confidence in the cash position at Goldman and investors were very impressed at the raw numbers and the ease at which GS seems to maneuver around the economic landscape.

The market momentum continued throughout the day and once the news hit the wires that the Federal Reserve cut the Interest Rate in the US by .75% the market seemed poised to go nowhere but higher. The day finished at the peak of the session, and the Dow (420 points, 3.5%), the Nasdaq (90 points, 4.2%) and the S&P (54 points, 4.2%) all recorded substantial gains.

Disclosure: Author owns GS