Goldman Sachs Gains as China Grows: Upgrade Winner

NEW YORK ( TheStreet) -- Goldman Sachs ( GS) was the winner among the largest U.S. banks on Thursday as shares rose 1.4% to close at $159.96.

The broad indices ended higher after HSBC released its flash China Purchasing Managers Index for October. The reading came in at 50.9 rising from 50.2 in September, reaching a seven-month high. A reading above 50 indicates expansion.

HSBC chief economist for China Hongbin Qu said in a statement that increases in the China PMI came "on the back of broad based modest improvements," and implied that "China's growth recovery is becoming consolidated into 4Q following the bottoming out in 3Q."

"This momentum is likely to continue in the coming months, creating favorable conditions for speeding up structural reforms," Qu added.

Back home, the Department of Labor reported that first-time unemployment claims for the week ended Oct. 19 totaled 350,000, down 12,000 from the previous week's revised total of 362,000. Economists polled by Thomson Reuters on average expected new jobless claims to come in at 343,000.

A positive market reaction following a somewhat disappointing unemployment report is not surprising, as investors continue to hope the Federal Reserve will maintain its "QE3" stimulus policy, which includes net monthly purchases of $85 billion in long-term bonds. The bond purchases have continued since September 2012. The Federal Open Market Committee next meets on Oct. 29-30, and will release a policy statement on Oct. 30.

The KBW Bank Index ( I:BKX) on Thursday was down slightly to 64.66, with the 24 index components evenly split between winners and losers.

Aside from the continuing coverage of the expected groundbreaking settlement between JPMorgan Chases ( JPM), the Department of Justice and regulators -- which could have a major effect on private investors' plans to sue the company -- the major banking news on Thursday was the Federal Reserve's proposal for new liquidity requirements for large U.S. financial institutions.

The Fed finally proposed rules to implement the Basel III liquidity standards, and taking a self-described "stringent" approach, by requiring full compliance the rules by January 2017, instead of January 2019, as per the Basel agreement.

Goldman Sachs

Shares of Goldman Sachs have returned 27% this year. The shares trade for 10.4 times the consensus 2014 earnings estimate of $15.34 a share, among analysts polled by Thomson Reuters.

Deutcshe Bank analyst Matt O'Connor on Thursday upgraded Goldman to a "buy" rating from a "hold" rating, with a price target of $181, which assumes the company will trade for 1.1 times book value at the end of 2014. Goldman's shares now trade just above the company's stated Sept. 30 book value of $153.58.

In a client note, O'Connor wrote that since January, "GS shares have lagged peers by 700bps--likely due to a disappointing 3Q (and even 2Q in some areas) and uncertainty over pending regulation. From here, expectations seem low, 4Q should benefit from continued compensation flexibility (we don't think GS used all of this in 3Q), likely better relative performance in both FICC and EQ trading and good completed M&A."

GS Chart GS data by YCharts

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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