Today, Goldman Sachs (NYSE: GS ) announced that its profits fell 58% during the fourth quarter. That's not as bad as last quarter, when Goldman reported its second-ever quarterly loss, but it still stings.
The bank's bottom line was hurt by the ongoing European financial crisis and a deal slowdown. And Goldman's not alone. JPMorgan and Citigroup (NYSE: C ) also reported earnings declines due to weak results from their investment banking divisions.
Goldman's weak earnings weren't a surprise -- if anything, investors expected much worse. Shares rose 6% in midday trading, as analysts had pegged the bank to make $1.23 in earnings per share but got $1.84 instead.
What does all this mean? Once again, we're seeing more pain for banks with heavy trading and investment banking operations, alongside pretty strong results from commercial banks such as US Bancorp (NYSE: USB ) and Wells Fargo (NYSE: WFC ) , which are benefiting from strong credit quality and loan growth. Tomorrow, we'll see if the pattern holds, when Morgan Stanley and Bank of America report.
All in all, these two trends are good news for the economy and the rest of the Dow (INDEX: ^DJI ) stocks. Loan growth joins strong employment and manufacturing reports in providing supporting evidence that a modest economic recovery is under way. And the decline of trading at major banks is good news for the economy over the long term, as it makes a financial crisis like 2009's less likely in the future.
If you're looking for a few banking stocks that will benefit from these two trends, I'll point you to my colleague Anand Chokkavelu's top banking picks. He details them in our brand new free report: "The Stocks Only the Smartest Investors Are Buying." I invite you to grab a free copy by clicking here.
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