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The Zacks Analyst Blog Highlights: Goldman Sachs Group, Morgan Stanley, Raymond James Financial and Stifel Financial

For Immediate Release

Chicago, IL – April 08, 2016 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include The Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS), Raymond James Financial, Inc. (RJF) and Stifel Financial Corp. (SF).

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Here are highlights from Thursday’s Analyst Blog:

Goldman Sachs & 3 Other Broker Stocks to Avoid

Expectations of a stable economic backdrop, accommodating credit performance and likely rate hikes kept investors a tad optimistic about the performance of the finance sector. However, a reality check awaited even the most optimistic investor, with a massive sell-off occurring in the early part of the 2016, mainly in the banking industry, which put the final nail in the coffin.

Investors’ concerns escalated to such an extent that even large-cap bank stocks experienced the worst start this year since 2009. To make matters worse, the Federal Reserve’s reluctance to increase interest rates dashed all hopes of a turnaround.

Most frustratingly, the persistent global issues and volatile financial markets continue to boggle investors’ minds. Though the market seems to have fully discounted the possibility for a recession in 2016, risks inherent in a slowing global economy, plunging commodity prices and volatile oil prices continue to cloud the financial picture for the rest of the year.

While several industries within the finance sector including insurance, banking, brokerage and asset managers remain vulnerable to the low interest rate scenario, let’s focus on the effect of a slowing domestic and global economy on market-related revenues of investment brokerage firms.

Is the Brokerage Industry in Trouble?

Investors’ preference for equities over bonds boosted brokerage commissions in 2015. However, fixed income trading volumes declined due to a low rate environment, which is expected to continue in the near term.

Moreover, lower rates coupled with regulatory pressure have limited proprietary trading, in turn hurting the industry's fees and margins from trading services. Also, the turmoil in capital markets will keep trading, investment banking and asset management revenues under pressure.

In Feb 2016, Goldman Sachs analyst Richard Ramsden said in a note that the first quarter could be the weakest in recent history for capital market revenues. He predicted a 17% decline in investment banking division revenues, a 13% decrease in equities revenues, and a 15% drop in fixed income, currencies and commodities (FICC) revenues.

"The combination of higher volatility, wider credit spreads, lower equity valuations, and uncertainty around the trajectory of economic growth across the globe has created a very tough environment for the capital markets business to start the year," the note stated.

Does Goldman Captain the Sinking Ship?

The Goldman Sachs Group, Inc. (GS) reported a decline in revenues from the underwriting business as well as revenues from equity investments, debt securities and loans, along with lower FICC revenues as well as equity trading revenues in its last earnings.

Any better picture is not expected for the company considering its progress so far this year. Per a Bloomberg report, Goldman’s income from investment banking – advising takeovers and underwriting securities – is projected to drop 32% in the first quarter on a year-over-year basis, while revenue from the company’s larger trading business is expected to decline 17%, according to Credit Suisse analysts.

Further, Goldman’s revenue from underwriting equities is anticipated to plunge 74%, while the company’s biggest investment-banking business, advising deals, will probably fall 27%.

Some senior executives at the New York-based firm also hinted at a 25% drop in revenue from investment banking business. Notably, Goldman remains more exposed to market whims compared to its counterparts with around two-thirds of its net revenue being generated from trading and investment banking last year.

No near-term respite in the current challenging environment justifies the 10.4% downward revision in the company’s 2016 earnings estimate over the last 30 days. This Zacks Rank #4 (Sell) stock, with a VGM score of ‘D,' has declined nearly 14% year-to-date, thereby giving enough reasons to stay away from it.

Other Broker Stocks to Avoid

Besides Goldman, Morgan Stanley (MS) is another Wall Street biggie that is crumbling under the weight of pressing global conditions. Morgan Stanley chief financial officer Jonathan Pruzan said that market swings have made it difficult for the firms to sell securities or consummate deals. Also, anxious clients were not trading as much.

This Zacks Rank #5 (Strong Sell) stock, which holds a VGM Score of ‘D,’ has lost almost 23% year-to-date. Its 2016 earnings estimate was lowered by 7% over the last 30 days in view of weak trading and investment banking revenues.

Florida-based Raymond James Financial, Inc. (RJF) recorded weak earnings in the last reported quarter owing to an extremely challenging environment for equity investment banking. With over 18% year-to-date decline in share price, a VGM Score of ‘C’ and nearly 1% downward revision in 2016 earnings estimate over the last 30 days, this Zacks Rank #4 stock should be given a miss.

Headquartered in Missouri, Stifel Financial Corp.’s (SF) latest earnings results reflected a decrease in investment banking revenues owing to heightened volatility and market uncertainty around commodity prices and global growth. This Zacks Rank #5 stock, which holds a VGM Score of ‘D,’ has lost over 31% year-to-date, justifying the 4% downward revision in 2016 earnings estimate over the last 30 days.

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GOLDMAN SACHS (GS): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
RAYMOND JAS FIN (RJF): Free Stock Analysis Report
STIFEL FINL (SF): Free Stock Analysis Report
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