Why Goldman is still very cautious on the stock market
Market challenges may persist, prompting Goldman Sachs to remain cautious in its stock recommendations, even if they are at much cheaper levels than six months ago.
“Until the growth/inflation mix improves, volatility is likely to linger as investors swing between frustration with inflation and obsession with recession,” wrote Christian Mueller-Glissmann, strategist at Goldman Sachs, in a new note to clients, adding that Goldman is positioning itself “defensively” for the next three months until macroeconomic conditions show signs of improvement.
“Near-term equity downside risk remains high as equities only price in a mild recession: much of the year-to-date valuation depreciation is driven by rising rates/l ‘inflation,” Mueller-Glissmann added. “Unless bond yields start to fall and cushion the rise [Equity Risk Premiums] due to recession fears, equity valuations could fall further. Additionally, earnings revisions are expected to turn negative in the second half of the year.”
Goldman’s view of the market landscape follows a brutal first half for investors (provided they don’t run out of stocks…) as interest rates rose and inflation remained high.
The S&P 500 ended the first half of the year on Thursday down 20.6%, marking its worst start to the year since 1970. As for the Dow Jones Industrial Average, its 15.3% drop in the first half was its worst performance since 1962. The Nasdaq Composite’s 29.5% fall in the first half was its worst first half in its history.
Virtually no stock was spared the intense selling pressure of the first half.
Apple and Tesla are down 23% and 36%, respectively, since the start of the year. Netflix fell off a cliff with a 71% crash. A rare first-half winner: dividend-payer IBM with a 5% gain.
“I think the bear market can’t end until inflation shows consistent signs of slowing down,” Saira Malik, chief investment officer of Nuveen, said on Yahoo Finance Live.
Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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