Goldman’s Pandl Says Santa-Like Rally Hard to Repeat Near Term

(Bloomberg) -- The already significant rebound in investor expectations for global growth suggests December’s risk-asset rally could struggle to extend over the next month or two, according to Goldman Sachs Group Inc. strategist Zach Pandl.

An improved growth outlook was responsible for about three-quarters of the S&P 500 Index’s nearly 3% return last month thanks to easing trade tensions, the bank’s co-head of global foreign-exchange and emerging-markets strategy wrote in a note Monday. That was a change from the rest of 2019, when monetary policy was the key market driver, he said.

“The Santa Rally was about an upgrade in global growth expectations,” Pandl said in e-mailed comments. “I personally think this will be very hard to repeat over the near-term given how much growth has been priced back in,” with the growth factor having risen to pre-August levels, he added.

U.S. stocks along with their global counterparts rose to records last month, after the Trump administration announced a phase-one trade agreement with China in mid-December. While precise terms of the deal have not been revealed, President Donald Trump said last week its signing is set for Jan. 15.

Goldman said it used changes in asset-class correlations to estimate the underlying macro drivers behind financial market moves. It expects risk-asset returns in 2020 to be closely tied to the growth outlook, rather than central bank policy as was the case last year.

“In terms of the macro drivers of market returns, we expect 2020 to look much more like December 2019 than the prior 12 months,” Pandl said in the note. “Easing trade tensions meant our ‘growth’ factor rebounded in December, and it will need to keep improving for investors to experience decent risky asset returns this year.”

To contact the reporter on this story: Cormac Mullen in Tokyo at cmullen9@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Joanna Ossinger, Andreea Papuc

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