Trump's attack on Goldman could prompt watering down of Wall Street's independent analysis

Globe and Mail

18 hours ago

U.S. President Donald Trump's criticism of Goldman Sachs' research on tariff risks could prompt some analysts to water down their research, investors and academics said, an outcome that could leave investors with less reliable information.
The reams of research that banks such as Goldman produce are used by institutional investors, such as hedge funds and asset managers, in deciding how to allocate capital.
Trump's comments -- in which he lambasted Goldman, its economics team and CEO David Solomon and accused them of making 'a bad prediction' -- have triggered a debate on Wall Street about the possible fallout, according to interviews with banking industry sources and investors.
At one Wall Street bank, Trump's comments spurred informal conversations among staff, a source familiar with the matter said. The source said they also discussed how to incorporate government data in the wake of Trump's decision to fire the head of BLS, claiming -- without evidence -- that its data had been politicized. Still, the bank was not considering changing the way research operates.
'This is going to come down to a person's ability to withstand a barrage of criticism from the Oval Office, and the extent to which these banks provide support for their chief economists,' said Dave Rosenberg of Rosenberg Research, who has worked in the economics departments at several banks. 'If we notice that research is being watered down ... then we'll know that this has had an effect.'
Jack Ablin, chief investment strategist at Cresset Capital, said if banks do start self-censoring, smaller investors who do not have the resources to do their own analysis are likely to suffer most.
Trump's criticism is his latest attack on corporate America and other institutions, and is a break from historical norms, where presidents have typically avoided calling out private companies and executives for things they do not like.
Some companies that have considered passing on tariff costs to customers have faced public criticism, and Trump, who came to politics after running businesses, has intervened directly in private business decisions by making a deal with Nvidia NVDA.O to give a portion of its revenues from sales to China of AI chips to the government.
Trump 'certainly is taking a number of steps that diverge from the traditional view of the respective roles of the government and private industry,' said Henry Hu, a securities law professor at the University of Texas.
In a social media post earlier this week, Trump said foreign companies and governments were mostly absorbing the cost of his tariffs, counter to Goldman's research.
'Given that sell-side Wall Street analyst predictions have been about as accurate as random guessing, small investors will do just fine with the president exercising his First Amendment right about flawed Wall Street research,' a White House official told Reuters.
On Wednesday, Goldman's U.S. head economist David Mericle defended its research on CNBC, vowing to 'keep doing' what the bank considers informative research.
Goldman declined requests for further comment.
Other major banks, including Wells Fargo, JPMorgan, Morgan Stanley, Deutsche Bank, Bank of America and Citigroup, declined to comment.
There has already been evidence of self-censorship. A senior JPMorgan Asset Management JPM.N investment strategist, Michael Cembalest, earlier this year said during a webinar that he refrained from voicing some of his thoughts on U.S. tariffs publicly. Shortly after Cembalest's comments, Jamie Dimon, JPMorgan's CEO, said that he expects analysts to speak their minds. Both Cembalest and the bank declined to comment for this story.
Hu said there is a risk involved in even appearing to give way to political pressure.
'Goldman's reputational capital is at stake here,' he said. 'If their views on the economy become biased, and they are shown to be wrong, why would anyone choose Goldman to advise them on anything?'
Mike Mayo, banking analyst at Wells Fargo, said independent research is critical for investment bank's reputation. 'Investment banks live and die by their reputation and independence. That transcends all other considerations.'
Wall Street research has long been tightly overseen, one source said, with supervisory analysts reviewing research reports to ensure that language is not inflammatory, emotive or partisan and that reports are objective and cite sources.
That person said that if analysts feel unable to speak openly then investors will pay more or take greater risk. Liquidity will suffer and there will be less foreign participation in U.S. markets, the person said.
It was large losses by smaller investors that triggered the first major probe of Wall Street research in the aftermath of the dot com stock bubble of the late 1990s. Eliot Spitzer, then New York Attorney General, found that Wall Street analysts had swapped their honest opinions for unwarranted 'buy' ratings on companies to help their banks win underwriting and advisory business. The result: a $1.5 billion global settlement payout by Wall Street and lifetime bans for some analysts.
It remains to be seen whether the current kerfuffle will have an outsized impact on Wall Street or if it is a storm in a teacup, said Steve Sosnick, market strategist at IBKR.
'It does raise a lot of questions,' he added.
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