# Wall Street banks are crushing earnings — ride the momentum on Goldman and Morgan Stanley

_AI-generated trading idea · LONG · GS, MS_

> Canonical page: https://commonquant.ai/research/for-you/wall-street-banks-are-crushing-earnings-ride-the-momentum-on--68547072-c487-4ca9-a418-766f6f187fb7

Wall Street's biggest investment banks just crushed their earnings reports thanks to a massive surge in trading and dealmaking. Goldman Sachs hit record highs and Morgan Stanley easily beat expectations, showing that the big financial firms are thriving right now.

## Idea

Goldman Sachs just delivered a blowout quarter that is pushing its stock to record highs, while Morgan Stanley similarly beat profit estimates on strong trading revenue. This wave of better-than-expected results shows that Wall Street's trading desks and advisory businesses are firing on all cylinders, driving fresh optimism into the financial sector. When major financial institutions post record-breaking trading revenue and surge past expectations, it often attracts a wave of buyer interest that pushes the entire sector higher. Riding this positive momentum by buying the top-performing banks offers a solid opportunity to capitalize on Wall Street's current winning streak.

## Advanced Analysis

### Verdict: promising thesis, premature trade — wait for ADX confirmation

The idea that Wall Street trading desks are firing on all cylinders has genuine fundamental teeth — Goldman's diluted EPS surged roughly 154% year-over-year to $51.32 and Morgan Stanley's grew 28.4%, with both firms posting top-quartile ROE among Financials peers. But the trade itself is not ready: ADX sits at 10.42 for GS and 4.28 for MS, both far below the 25 threshold the strategy requires, meaning there is no confirmed trend to ride. The single-trade backtest (one winner, 5.66% return, 1.6% max drawdown over 60 months) shows shallow risk when conditions do align, yet walk-forward testing across three folds produced zero triggers and no robust setup was established — one observation cannot validate a rule set. Goldman's negative $47.2 billion free cash flow, sitting at the 0th percentile among 622 sector peers, is a deeper concern the earnings narrative does not address. Wait for ADX to climb above 25 alongside confirmed volume before deploying capital.

\*\*Conviction Breakdown:\*\*
\- \*\*Thesis support (65):\*\* The earnings narrative is backed by real numbers — 154% EPS growth at GS, 28.4% at MS, and ROE rankings in the 81st and 84th percentiles — but the thesis glosses over Goldman's cash burn and rising leverage at both firms.
\- \*\*Trade readiness (25):\*\* Neither stock is near triggering. GS needs ADX to rise 14.58 points and MS needs a 20.72-point move just to reach the 25 threshold.
\- \*\*Risk quality (55):\*\* The symmetric 10% stop and take-profit cap upside, while the expected portfolio drawdown of roughly 44% suggests this basket is still a leveraged-equities trade despite near-zero correlation.
\- \*\*Backtest evidence (30):\*\* One winning trade over five years carries no statistical weight; walk-forward testing was rejected for insufficient trades across every variant tested.
\- \*\*Fundamentals trend (70):\*\* Earnings and profitability metrics are strong and sector-leading, though the free cash flow deterioration and climbing debt-to-equity ratios at Morgan Stanley (from 2.10 to 3.06 over five years) temper the picture.

#### Conviction score breakdown

Composite score computed by the server from the applicable evidence-tier dimensions.

| Measure | Value |
| --- | ---: |
| Thesis support | 65/100 |
| Trade readiness | 25/100 |
| Risk quality | 55/100 |
| Backtest evidence | 30/100 |
| Fundamentals trend | 70/100 |
| Score | 49/100 |
| Composite Score | 49/100 |
| Evidence Tier | backtested |

### Trade now

Neither GS nor MS is at an entry today. The strategy needs three conditions to fire simultaneously on the daily chart: price crossing above the 50-day simple moving average, on-balance volume above zero, and a 14-period Average Directional Index (ADX) above 25. On GS, price is at $1,065.22 — already $28.57 above its 50-day moving average at $1,036.65, so the moving average cross condition reads as near. On MS, the same condition is also near, with price at $215.50 versus the $211.02 moving average. However, ADX is the hard blocker right now: GS reads 10.42 and MS reads 4.28, both far below the 25 threshold needed to confirm a genuine trend. On-balance volume is currently unavailable.

The completed backtest evidence supports the wait. Over the five-year evaluation window, the strategy produced one trade on GS, returning 5.66% with a maximum drawdown of just 1.60%. A separate two-year GS window mirrored this resilience, returning 5.43% with a 1.28% drawdown. No robust parameter setup was established beyond the baseline; every walk-forward variant was rejected for producing fewer than six trades.

Concretely, "wait" means monitoring the daily chart for ADX to climb above 25 — currently 14.58 points away on GS and 20.72 points away on MS — alongside confirmed positive on-balance volume. If an entry triggers on GS at $1,065.22, the fixed stop loss sits 10% below at roughly $958.70 and the take-profit target sits 10% above at roughly $1,171.74, yielding an effective reward-to-risk ratio of 1:1 before the 60-day time stop closes the position.

#### GS price and trigger map

Uses the idea timeframe and keeps price levels on the price axis.

| Measure | Value |
| --- | ---: |
| Ticker | GS |
| Timeframe | 1d |

#### MS price and trigger map

Uses the idea timeframe and keeps price levels on the price axis.

| Measure | Value |
| --- | ---: |
| Ticker | MS |
| Timeframe | 1d |

### Earnings momentum is real — Goldman's profitability backs the thesis

The fundamental case rests on genuine earnings firepower. Goldman Sachs reported diluted EPS growth of roughly 154% year-over-year, landing at $51.32 per share — a number that directly supports the idea's claim of a "blowout quarter." Per the CNBC piece on July 14, analysts raised their price target on the back of that result and an upbeat outlook. Morgan Stanley's…

#### GS Debt to equity

Debt to equity trend from CommonQuant fundamentals/XBRL data; -12.8% from first to latest point.

| Measure | Value |
| --- | ---: |
| 2009-12-31 | \2.775801114347937 ratio |
| 2010-06-30 | \2.5871388125008465 ratio |
| 2010-09-30 | \2.6047821087275467 ratio |
| 2010-12-31 | \2.433515176586173 ratio |
| 2011-03-31 | \2.525949026480288 ratio |
| 2011-06-30 | \2.532215711205705 ratio |
| 2011-09-30 | \2.639824220979341 ratio |
| 2011-12-31 | \2.582077040026144 ratio |
| 2012-03-31 | \2.503670313721112 ratio |
| 2012-06-30 | \2.420396678333677 ratio |
| Latest Value | \2.420396678333677 ratio |
| Change Pct | \-12.803670773716377 ratio |
| Ticker | GS |
| Timeframe | reported periods |

#### GS sector percentile check

Ranks GS against 622 companies in its sector using CommonQuant fundamentals.

| Measure | Value |
| --- | ---: |
| Free cash flow | 0th percentile |
| Return on equity | \81.13207547169812th percentile |
| Ticker | GS |
| Sector | Financials |
| Peer Count | 622 |

#### MS sector percentile check

Ranks MS against 795 companies in its sector using CommonQuant fundamentals.

| Measure | Value |
| --- | ---: |
| Return on equity | \84.15094339622642th percentile |
| Ticker | MS |
| Sector | Financials |
| Peer Count | 795 |

### Scores

- **Conviction score breakdown:** 49
- **Thesis support:** 65
- **Trade readiness:** 25
- **Risk quality:** 55
- **Backtest evidence:** 30
- **Fundamentals trend:** 70

### Watch items

- **GS — ADX (14)**
- **MS — ADX (14)**
- **GS — OBV**
- **MS — OBV**
- **GS — RSI (14)**
- **MS — RSI (14)**
- **GS — Price crossed above SMA (50)**
- **GS — ADX (14) above 25**

## Key details

- Symbols: GS, MS
- Timeframes: D1
- Tags: \#banks, \#bank-earnings, \#momentum, \#wall-street

## Community

- Upvotes: 18
- Views: 213
- Copies: 0
- Cosigns: 0

## News sources

- [Morgan Stanley beats profit estimates on dealmaking boost, strong trading - Reuters](https://news.google.com/rss/articles/CBMingFBVV95cUxNSS1YZ2NFOVEtLTFaVmtvM0N2NXc3enBnUnozLW04OENJQzJoOHBrVkhQYnlOY0l0SmJWVlNUaFZzUHNna2JZMksxWFQ4NTUyeDZPNjFwNjBkOU5RdkpPT1lodzFRMU5Gb25Sa3ZGYjNDbEhjRWpISS1jSkFuUUFJbnVuRmRWTy0xeXoxWkFaal9Yc0M2bHU4RFVYNnRYZw?oc=5) — Reuters
- [We're raising our price target on Goldman Sachs after a blowout quarter, upbeat outlook](https://www.cnbc.com/2026/07/14/were-raising-our-price-target-on-goldman-sachs-after-a-blowout-quarter.html) — CNBC

## Related

- [GS trade ideas](https://commonquant.ai/stocks/gs)
- [MS trade ideas](https://commonquant.ai/stocks/ms)
- [Latest market news](https://commonquant.ai/news)

## About CommonQuant Research

Ideas and Advanced Analysis are generated with fresh, LLM-selected news headlines and grounded in SEC XBRL fundamentals and peer percentiles. Strategies built from these ideas are automatically backtested (12-month and 5-year, walk-forward tuned) and stress-tested before they can go live, then monitored against the news hourly while they run.