On Tuesday, Goldman Sachs (NYSE:GS) will release its quarterly report, and investors have been nervous at the lack of conviction in the stock's movements so far in 2014. Even as the specter of tighter regulation raises concerns for it and peers Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C), Goldman Sachs is also suffering from the relative drop in market activity. Without a rebound in interest in the investing world generally, many are worried that Goldman won't be able to rediscover its past growth.

For good or ill, the Goldman Sachs name is tied to the public's overall perception of Wall Street. During good times, Goldman was revered as a creator of fortunes for many. During the financial crisis, it was reviled as a destroyer of wealth. The truth lies somewhere in between, but Goldman Sachs nevertheless has to handle the reputational damage it has suffered in recent years and find ways to make money in the future. Let's take an early look at what's been happening with Goldman Sachs over the past quarter and what we're likely to see in its report.

Source: Goldman Sachs

Stats on Goldman Sachs

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$7.97 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance

Can Goldman Sachs earnings surprise investors again?
In recent month, investors have slashed their views on near-term Goldman Sachs earnings, reducing their second-quarter estimates by 10%. But the stock has done better, climbing more than 5% since early April.

Goldman Sachs' first-quarter earnings report gave investors some optimism for the bank's future despite the challenges it faces. Revenue dropped 8%, sending net income down by 11%, but that was actually less extreme than most had feared would happen. Goldman's market-making activity was down substantially, but rising levels of net interest income and some gains from its investment-banking division helped offset those declines. Moreover, with cost-cutting measures, Goldman Sachs minimized the impact on its bottom line.


Source: Wikimedia Commons

Nevertheless, investors are worried about the challenges that Goldman Sachs, Morgan Stanley, Citigroup, and other banks face in today's environment. Goldman continues to face litigation and regulatory risk, with the Justice Department scrutinizing its high-frequency trading operations and the SEC investigating hiring practices in connection with its global business. Moreover, with new requirements for capital retention and merger limitations aimed at the largest financial institutions, Goldman and its peers will have to work even harder to find ways to grow their business.

Yet one area where Goldman Sachs has the potential to excel is in sticking with some areas that some of its peers are less excited about. For instance, several other big banks have taken steps to eliminate their exposure to the commodities markets, citing the potential for heightened regulation as making those businesses more trouble than they're worth. Yet at least for now, Goldman Sachs seems resolved to stay in the commodities world at least to some extent, and that could give the bank greater market share compared to its peers.

Moreover, even a return to more normal conditions would help Goldman Sachs. Last month, Goldman CEO Lloyd Blankfein referred to the relatively calm markets recently as a luxury, reminding investors that those conditions could disappear in an instant. In particular, when interest rates start to rise, volatility levels could go back up as well, and that in turn could help reawaken some of the dormant markets that have hurt Goldman's market-making revenue.

In the Goldman Sachs earnings report, watch to see how the bank's various market segments perform. If the stock market starts to back off from recent highs, it'll be interesting to see if Goldman has positioned itself to take maximum advantage of new opportunities in turbulent markets.

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Dan Caplinger owns shares of Apple. The Motley Fool recommends Apple and Goldman Sachs. The Motley Fool owns shares of Apple and Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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