Displaying items by tag: Goldman Sachs
The stock market is in knots this week. The trade war between the US and China is increasing in intensity even as the two sides negotiate. This morning it hit a new peak as Trump hiked tariffs on $200 bn on Chinese goods. With the trade war looking more likely to continue, Goldman Sachs has recommended what it says are the best stocks for an all-out trade war. The general idea from David Kostin’s team at GS is to buy service firms, which are less exposed to tariffs and have better corporate fundamentals. Here is a list of the companies in Goldman’s selection group: Facebook, Visa, Bank of America, Walt Disney, Home Depot, Netflix, McDonalds.
FINSUM: This is an interesting mix of large and mega caps and we agree with Goldman’s simple, yet compelling thesis.
Investors are currently worried about corporate bonds. On the one hand performance has been pretty good, especially for the riskiest bonds. But therein lays the problem—highly indebted companies have not been punished and there appears to be way too much corporate debt at the moment. This is the Fed’s view and many market participants, but Goldman has shared another—that the amount of corporate debt in the economy is just fine and corporate balance sheets look healthy. The bank says US companies are in an “unusually healthy position this deep into a business cycle expansion”. Goldman notes that companies are spending a smaller share share of their cash flow on interest than they were a decade ago, and that they are earning more than they are spending.
FINSUM: The corporate debt situation is all about perspective. Things look better than in the last crisis, but anyway you slice it, the debt burden looks at least somewhat daunting.
If you want to pick up some great bank stocks at a great discount, now is the time to do it. Despite great earnings, JP Morgan still looks inexpensive. Goldman Sachs does too. Both banks saw big trouble in their trading divisions in the first quarter, which has led to some attractive valuations. The problem for investors is that markets that keep doing what they have will not be bullish for the banks (i.e. low volatility), so options strategies may be the best way to play the situation.
FINSUM: Nothing would be better for this trade than if there was another big market disturbance that drove a bunch of volatility, which is quite good for trading revenue.
Goldman Sachs put out a bearish article today that is calling for the tail end of this bull market. The bank thinks the rest of this year is going to be a dud and that PE multiples will not rise above 17. Therefore, they are suggesting a group of stocks that can thrive in such an environment. Here is a selection of 10 of their 20 choices: Texas Instruments, VeriSign, Gilead Sciences, Abbvie, Amgen, Starbucks, Lam Research, AT&T, Foot Locker, HanesBrands.
FINSUM: Appears like there are a lot of defensive stocks in this basket, which seems like a good plan for a sideways or bearish market.
In what seems slightly odd timing, Goldman Sachs is going on the record about the 2020 election. The bank is saying Donald Trump is likely to win re-election. Goldman says his lead is “narrow” but that his chances are improved by the crowded Democratic field and the success of the economy. What is so interesting about the call is that in runs in contrast to most polls, which Goldman points out, saying “While we believe the majority of market participants expect President Trump to win a second term, we note that prediction markets point in the opposite direction and imply that the Democratic candidate has a 56% probability of winning and the Republican candidate has a 44% chance”.
FINSUM: We have to agree with Goldman. Trump’s base seems to have grown in strength since his initial election, and the politics of the left seem more likely to fragment their base (including into third party candidates) that unite them behind a single leader.