Goldman's Oppenheimer Reckons Recession Fears Have Gone Too Far

(Bloomberg) -- The godfather of stocks at Goldman Sachs Group Inc. has reassuring words for investors defying growth angst in the Treasury market to ride the risk rally.

The doom and gloom in bonds is looking stretched, and the U.S. economy may be strong enough to justify further interest-rate increases, according to the bank’s chief global equity strategist.

“If growth isn’t really as bad as people feared -- and that is being reflected in the bounce we’re seeing in credit and equity markets -- I think coming back to some kind of tightening could still come back onto the table,” Peter Oppenheimer said in a Bloomberg Television interview. “What we saw at the end of last year was too much negativity being priced in by investors, predominantly about the fears of a recession.”

Growth concerns have helped to push 10-year Treasury yields close to multi-year lows while relative premiums for longer-dated obligations are at July 2016 levels. By contrast, U.S. equities have added more than $3 trillion this year while the MSCI All-Country World Index is up 10 percent -- suggesting a far more upbeat economic outlook.

The bond-stock divergence is feeding fears that the smart money in Treasuries could prove a lead indicator for the market cycle.

“The bond market seems to be on the right side because it’s reflecting the somewhat weaker economic scenario,” said Dirk Thiels, head of investment management at KBC Asset Management NV. “It’s not the economic scenario we have envisaged a couple of months ago; it’s definitely weaker than that, and we’re a bit worried about equities in the coming months.”

All the same, the prospect of easing U.S.-China trade tensions along with the spirited uptick in risk appetite suggest bond valuations are “quite stretched,” according to Oppenheimer.

One note of caution: Further upside in U.S. stocks in the coming months will be limited by moderate profit growth, according to the strategist, reiterating the bank’s house view.

“If we got any resolution to the trade conflict, and that boosted sentiment a bit, we could see a little bit of term premium and rising yields come back into play,” he said.

©2019 Bloomberg L.P.

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