Markets are fretting over a variety of concerns: spreading delta variant, Chinese regulator crackdown, and Fed taper. However, Goldman Sachs says these risks are overblown, as delta variant will likely be less worrisome economically and their Fed forecast is dovish. They see a sharp turnaround for cyclical assets such as higher equities and higher bond yields in the short run. Near-term optimism will fuel US and Euro equities and most likely boost Japanese stocks as well. Going so far as to recommend shorting long-term euro bonds, and buying economically sensitive currencies like the Norwegian krone and South Korean won, which will appreciate relative to the dollar. This near-term cyclical rally won’t last long as they expect 2022 to deal from a different deck that won’t be as friendly to investors.
FINSUM: Weaker jobs growth will also delay the Fed’s taper, aiding in the cyclical rally.