Goldman Sachs Says It Is Bullish on Stocks Again
Goldman Sachs flips bullish on stocks for the next three months
Goldman Sachs has upgraded global equities to overweight for the next three months, reversing a neutral stance from September, according to strategists led by Christian Mueller-Glissmann.
The team said earnings growth remains supportive and that a valuation de rating and weaker positioning since the summer have improved the balance of risk and reward. Goldman kept its already bullish 12 month view and is overweight equities in the U.S. and Asia over three months.
The S&P 500 moved sideways from June to August, gaining roughly 0.8 percent, even as earnings improved. Its forward 12 month price to earnings ratio fell to 19.1, from 21.1 in early June and 22 times at the start of the year, according to FactSet data cited in the report.
Earnings season is the test
Goldman expects third quarter results to help the case, with analysts projecting unusually strong profit growth for S&P 500 companies and the bank seeing scope for results to beat expectations. Strong technology earnings, notably hardware, drove much of the valuation de rating.
The bank had been cautious in September about volatility from choppy bond markets, the midterms and geopolitics. Bond yields and oil prices remain risks, and yields have traded at more than two decade highs, weighing most on rate sensitive parts of the market.
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How this could hit the options market
A major bank turning overweight into earnings season is a classic risk on signal for index options, with SPY, QQQ and IWM the cleanest expressions. Call flow building in those names would confirm traders are following Goldman's lead.
Goldman's own stock, GS, and other brokers such as MS can also benefit if risk appetite and trading volumes rise. The bear case remains rates: a fresh yield spike would hit the rate sensitive corners Goldman flagged first.
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