Why the stock rally fizzled — plus, our latest thinking on Goldman and Bristol Myers

Stocks rose modestly Thursday, driven by Nvidia's strong quarter boosting the AI sector, though gains were tempered by uncertainty surrounding potential tariffs after a court ruling against Trump's trade authority. Goldman Sachs shares underperformed as President Waldron indicated Q2 investment banking activity was weaker than Q1 due to market volatility, although trading revenue remained robust. Investors are also awaiting key earnings reports from Costco, Marvell, and Dell, as well as the Fed's PCE inflation data, expected to show a slight cooling in April.

Analysis

Market performance saw a modest uplift, primarily driven by Nvidia's strong quarterly results which bolstered the artificial intelligence sector; however, gains were tempered by ongoing uncertainty regarding U.S. trade policy after a court ruling questioned certain tariff authorities, a decision the administration intends to appeal while other tariff avenues remain open. Goldman Sachs shares underperformed the financial sector following COO John Waldron's comments indicating weaker second-quarter investment banking activity compared to the first quarter, attributed to market volatility impacting deal closures—a sentiment aligning with JPMorgan's earlier forecast of a mid-teen percentage year-over-year decline in its Q2 investment banking fees. Conversely, Goldman's trading operations are reportedly benefiting from volatility, with 'robust' equity trading client activity and a stated 17% year-over-year increase in FICC revenue for the second quarter of 2024, even as current FICC levels are described as 'slightly softer' than the strong results of the same period last year. A recent pickup in capital markets, including IPOs like Omada Health and M&A activity such as Salesforce's acquisition of Informatica, offers potential for a stronger second half for Goldman, contingent on tariff stability. In the pharmaceutical sector, Bristol Myers Squibb's CEO Chris Boerner defended the long-term potential of its schizophrenia drug Cobenfy following a failed late-stage adjunctive trial in April, emphasizing its primary treatment efficacy and favorable side-effect profile. This assertion, largely reiterating previous company statements, has not fully dispelled investor skepticism, leaving Cobenfy in a 'show me' situation requiring further positive trial data; the CEO also voiced concerns about potential sector-specific tariffs. Investor focus now shifts to upcoming earnings from Costco, Marvell, and Dell, and the Personal Consumption Expenditures (PCE) price index, anticipated to show a slight cooling in April's year-over-year inflation to 2.5% for headline and 2.2% for core.

Key Decisions for Investors

• Investors should closely monitor developments in U.S. trade policy and tariff implementations, as these remain significant sources of market volatility and potential impact on specific sectors and companies.
• For Goldman Sachs, evaluate the contrast between current investment banking headwinds and the strength in its trading division, alongside nascent signs of capital markets recovery, particularly looking for sustained deal flow into the second half.
• Exercise caution with Bristol Myers Squibb, as the stock's outlook depends on forthcoming positive clinical trial data for Cobenfy to rebuild confidence after the recent trial setback, making it a 'show me' investment.
• Anticipate key insights from upcoming earnings reports, especially in technology and retail, and analyze the forthcoming PCE inflation data for its influence on Federal Reserve policy and broader market sentiment.