News Doesn’t Move Markets, Goldman Sachs Edition


Above is a five-day chart of the Goldman Sachs share price. The first arrow shows what happened when Goldman announced it was becoming a bank holding company; the second arrow shows what happened when Berkshire Hathaway announced it was putting $5 billion of new capital in to Goldman. And all that noise over on the left? Unrelated to any Goldman-specific news at all.

Now you can see the Berkshire news (but not the bank news) quite clearly in the volume chart underneath: there’s a big spike this morning. News causes trades, there’s no doubt about that. But on the other hand, volume was just as large through most of Thursday, without Goldman-specific news, and it stayed high all day, unlike today.

If you read any stock-market report today, it will feature the Goldman news front and center — not just to explain what the Goldman share price is doing, but even to explain what all the other shares in the US market are doing. But clearly Goldman shares are moving no more than is normal for the company these days: if anything, the stock seems less volatile today than it has been of late.

The fact is that working out a fair level for Goldman stock is all but impossible right now, what with the dilution announced last night, the impact of the extra capital, the high interest rate on the new perpetual shares, the deleveraging which may or may not be necessary as a result of becoming a bank, other consequences of the bank’s new regulatory oversight, the amount of money Goldman will have to start investing in low-return projects as a result of Community Reinvestment Act rules, etc etc etc.

And yet the shares today are at pretty much the same level as they ended last week. It could be that all the news somehow cancelled itself out; or it could be that no one knows anything, and that the default response is to do nothing for fear of looking stupid. My guess is that in a year’s time, the stock will be quite a long way from where it is now. In which direction, I have no idea. So averaged out, maybe the flat share price makes sense. It just isn’t very informative.

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