Commercial Vs Investment Bank, Two Powerhouses Have THIS To Say

Key Points

• Bank of America and Goldman Sachs have opened their books this quarter, releasing a significant game plan for you to follow.
• The noise has been cut out for you to focus on the protein of this trend, helping you navigate better purchases. 
• Time and reputation are on their side, and you can jump on their strategy for free today.

Today's market is more treacherous than ever; this is not your father's - or even your grandfather's - business cycle; it is a new battlefield out there. Previously, when uncertainty became present throughout markets, information took weeks and sometimes months to dissipate and begin to move assets accordingly; today, it is almost instant.

But don't worry. MarketBeat has your back by watching over markets and developments daily so you can tune out some of the noise. Today, as earnings season begins to kick off, big banks are casting their vote on where they think the economy - and the stock market - may be headed next.

Two of the biggest names out there have released their quarterly set of results, and what lies inside of them will uncover trends that will help you navigate today's market environment.

Information Advantage

On one corner, Bank of America NYSE: BAC holds the information on the consumer and commercial side. At the same time, The Goldman Sachs Group NYSE: GS will tell you about the investing side of things. Combining the two perspectives can aid you in your personal financial decisions, as well as your investing ones.

Beginning with some perspective, understanding how these two banks have performed year-to-date can start to give you an idea of the economic outlook today. Bank of America and Goldman Sachs stock declined this year, with an 18% and 12% decline, respectively.

When you zoom into a one-month perspective, which includes the price action from the recent earnings, the story begins to shape itself. Bank of America declined by 4%, while Goldman dropped by 11% in the past month. Conclusion?

The everyday consumer, who banks with commercial names like BoA (Bank of America), is getting a better deal in this market. If you look at the CD (certificates of deposit) rates at BoA, you will notice a 7-37 month CD will pay you as much as 5.0% annual yield.

Considering that virtually risk-free bonds offer a 4.9% yield today, this return begins to look more attractive. These offerings are drawing consumer deposits higher and driving NII (net interest income), a win-win situation thanks to the FED keeping rates higher for longer.

At Goldman, things are looking a bit duller. Earnings per share declined by a massive 33% from a year prior. Because this bank relies more on M&A (mergers and acquisitions) activity, which hardly happens during high-interest rate environments, a down cycle is almost inevitable.

Implications

Earnings at BoA show that trading activities delivered a 10% revenue bump, translation? Markets have been more volatile and will likely stay volatile for longer. Therefore, trading (when done right) could be the play today.

Suppose trading is not for you, but you are still looking for a reliable way to navigate the market. In that case, these two giants have a solution. 

They always say follow the money, right? Understanding where the 'masters of the universe' are making their money can tell you where to follow them.

Goldman suffered dire losses in their real estate department, where their investments took a nose dive. For you, this means building a potentially discounted portfolio of REITs (real estate investment trusts) with yield and upside; their trash becomes your treasure.

Within their wealth management division, where capital flows can be the publication of where they advise clients to go, spits out another helpful hint. $7 billion in inflows were "primarily in fixed income assets" and represented 38% of the product mix.

Liquidity products called for $11 billion in inflows, representing 29% of the total mix. Equities (stocks) shrank by $52 billion and only represented 23% of the mix. Get the message? Ditch overvalued stocks and start chasing high-dividend ones or straight bonds.

At BoA, things looked similar. A 6% revenue increase came from higher trading activity in credit and mortgage products, a form of yield (fixed-income). Fees from this department totaled $8.9 billion, while fees for equities only represented $4.9 billion.

Charge-offs at the bank increased from $869 million to $931 million, driven by higher credit card losses despite having an average FICO score of 774. This can be a sign of the times for the American consumer coming into trouble, driving opportunity here.

Now look, both camps have voted on the same strategy, and your best bet to survive today's storm is to follow them. If these masters are ditching stocks, your job is to pick up the best only. 

They are also chasing yield, so your best bet is to use MarketBeat's stock screening tool to search for dividend stocks that can beat risk-free CDs offered by the banks. These guys have been around the block and are here to tell you where the speedbumps are.