Goldman Sachs just put Wall Street on alert with 2 words

Goldman Sachs reported second-quarter earnings on Tuesday that beat expectations — but that’s not the whole story.

Though the firm beat in fixed income, currencies, and commodities, or FICC, trading revenues, which were up 20% from the same quarter a year, it was still down significantly for the first half of the year.

What’s more telling is what the bank had to say about it:

“Although market-making conditions generally improved compared with the first quarter of 2016, Fixed Income, Currency and Commodities Client Execution continued to operate in a challenging environment characterised by low interest rates, political uncertainty and concerns about global growth,” the firm said.

It’s the words “challenging environment” that are key. If things were looking positive, the firm would likely have avoided that language.

Meanwhile equities trading, which is arguably as important to Goldman Sachs as fixed income, missed expectations and was down 12% year-over-year. The firm said that was driven by lower revenues in cash products and derivatives in Asia, plus securities services, which saw slightly lower revenues.

“During the quarter, the operating environment for Equities was impacted by lower levels of client activity, lower market volumes and a decline in volatility compared with the first quarter of 2016,” Goldman said.

The investment banking outlook wasn’t much more optimistic. Investment banking revenues were down 11% for the year due to lower advisory and equity underwriting revenues.

Goldman said its investment banking backlog decreased from the ends of both the year-ago quarter and the first quarter.

Altogether, for the first half of 2016, Goldman is down 24% in FICC, 18% in markets, 17% in investment banking, and 28% in revenue.

After a weak first quarter, the firm likely would have needed a huge rebound in the second quarter in order to see overall improvement for the year. It doesn’t look like that’s happened.

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