Goldman Sachs Sees Opportunity for Cyclical Rally Despite Risks
(Bloomberg) -- The market’s concerns about economic growth are overdone, opening the way for potential gains in cyclical assets in the near future, according to Goldman Sachs strategists.
“We think the market is worrying too much about global cyclical risks from Delta outbreaks and China’s slowdown, and our Fed forecast is still more dovish than the market’s,” Goldman strategists led by Zach Pandl said in a note. “So we think some further relief in cyclical assets -- higher equities and higher bond yields -- is likely over the near-term.”
The fast spread of the delta variant, concerns about the U.S. Federal Reserve’s tapering and China’s slowing economic growth have been weighing on investor mood in recent weeks. And while global stocks are trading at record highs, market participants have been turning to more defensive and growth sectors in a sign of caution.
Goldman strategists said that the near-term global growth optimism will allow the market to “relax,” fueling further advance in U.S. and European equities. The outlook for Japanese equities is also getting better, they said.
For other cyclical assets, they recommended shorting 30-year Bunds as they expect the European Central Bank to reduce the speed of bond purchases in the fourth quarter, while adding that continental European recovery remains “solid.” They also noted that economically-sensitive currencies, such as the Canadian dollar, Norwegian krone and South Korean won, can start gaining versus the U.S. dollar or the Japanese yen as the U.S. rebound slows.
Still, the Wall Street broker cautioned that going forward, especially in 2022, the growth and policy outlook is likely to become “less friendly,” but now is the chance to get into cyclical trades.
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