Displaying items by tag: Goldman Sachs

Goldman raised the odds of a recession to over one-third in the next two years. The tightening cycle and rate hikes are causing waves in markets and the Fed could bump the Federal Funds Rate eight times this year. Overall economic health in the G10 helps mitigate the possibility of a recession, but it's still a possibility. Experts are saying that the Fed has a narrow path for a soft landing if they want inflation to come down to 2% and keep unemployment from rising. There are signs that the economy is beginning to weaken as consumer confidence is wavering. Still, the stock market doesn’t seem to pricing in a recession, however, the experts on Wallstreet and financial services are beginning to prepare.

Finsum: Look to the yield curve for recession predictions its the best sign and its beginning to warn investors.

Goldman told their investors that their best-case scenario for stocks had the S&P closing 2022 at 4,700, which might mean a 4% increase through the end of the year, but it would still finish below 2021’s close of 4,766. However, their worst-case scenario is very dower and predicts equities tumbling 21%. This scenario has the U.S. falling into a recession. Recession probability is higher than normal right now too as the US saw a 2-and 10-year yield curve investigation which has been the strongest indicator of a recession since the Great Depression.

Finsum: We wouldn’t pick a fight with the yield curve however, there is substantially more inflation pressure in this yield curve than in the previous ones reducing the probability of a recession.

Oil demand isn’t diminishing anytime soon, and while Russian Oil companies may suffer from sanctions and political pressure other oil companies are in a position to benefit. Goldman upgraded three oil companies that could capitalize. The first is Diamondback Energy from Texas; they have strong production and great revenues/earnings. Next up was Ovintiv which moved from Canada to the US two years ago but also has strong revenues and a half dozen consecutive quarterly gains in earnings. Rounding out the bunch is Hess which is a hydrocarbon extraction company which will benefit from the elevated prices in its shale search.

Finsum: These options look promising, remember fringe producers really benefit the most on the margins from elevated prices.

Goldman Sachs swiftly raised its one-month projection for Brent to $115 a barrel, a $20 price increase from their previous projection. Not only that they say there are still lots of upside risks if there is further disruption or escalation. The only thing that could hold higher oil prices off would be a complete deterioration of demand by the US and Western Europe. More sanctions are upcoming from the west as Russian banks will be banned from SWIFT payment systems. Commodities are also facing higher price pressures with both threats to payment methods for Russian goods and restrictions to Russian commodities to the wider West. On top of all of this shale supply will fail to compensate for the current demand and OPEC+ will have to step in if there is to be any relief in oil prices.

Finsum: This is a good time to by energy bonds as payment streams will surely be in supply with higher gas prices.

Goldman Sachs lowered their most recent median projection for equities, putting the year-end target for the S&P 500 at 4,900. It's clear the markets hadn’t accurately priced in the Ukraine risk which could be worse in Goldman’s eyes than the 2014 Crimea annexation. Additionally, Goldman warned that if inflation continues to be worse than their expectations and faster rate hikes are needed the S&P 500 could decline by up to 12% to 3,900 by end of 2022, and if a recession occurs when the trough is lower yet. The best plays are in industrials and consumer discretionary, but still, energy leads the way.

Finsum: In lockstep with Goldman, a recession is a worst-case scenario. The TIPs market says inflation expectations are still moderate, so they shouldn’t overact to inflation.