Displaying items by tag: Goldman Sachs
The market has been doing very well since October 30th, up around 9%. Goldman thinks even bigger gains are coming for the S&P 500. The bank has been encouraged by investors’ response after the election and thinks that the vaccine is really in the driver’s seat. The bank’s research team has significantly upgraded their earnings forecasts for next year and 2022 based on the better-than-expected recovery. According to Barron’s, a few assumptions underpin Goldman’s outlook, “at least one vaccine becoming widely available in the U.S., less drastic changes in policy because Congress is most likely to be divided, and the continued V-shaped economic recovery”. Goldman’s official forecast for the S&P 500 at the end of 2022 is 4,300 and a 20% gain from now through the end of 2021.
FINSUM: The “continued v-shaped recovery” is the most volatile aspect of these assumptions, but they also discounted a potentially positive one—another stimulus package. The forecast seems reasonable.
Goldman Sachs is stressed about the election. In particular, they are concerned about what a contested outcome could mean for stock prices. Because of that, they think the debates which started this week have the potential to be an “important catalyst for investors to assess risks”. The debates have the possibility of swinging the election strongly one way or the other, which means they can be tipping points for investors. “One way to lower the odds of a contested outcome (that brings noise and volatility) is via a large margin of victory that cannot be undermined”. That said, according to the bank’s strategists, even a big win could have risks: “Although undoubtedly under the clean-sweep scenario there is the negative implications for risk assets to be considered, stemming from a Democratic legislative agenda including higher corporate taxes and increased capital-gains taxes”.
FINSUM: Goldman is making it abundantly clear that they think most paths for the market lead lower—likely until the end of the year. With Trump now having COVID, that makes uncertainty even higher.
The market is falling again the day after the Labor Day holiday, and many tech stocks are nearing or in correction territory. It is a rough start to the week, and Goldman Sachs is not offering much hope. The firm published a research piece this weekend which was bullish on stocks overall, but said that another 10% correction may arrive soon. Goldman says that if investors start to doubt the trajectory of the recovery in the face of the super quick snapback in economic output that the market has priced, then stock prices will likely fall.
FINSUM: On the whole Goldman was pretty positive, but they also clearly allowed room for a short-term “shake out” in share prices. This correction we have on our hands might also lead to a change of market leadership, which would be an interesting shift.
Wondering where the market is headed? (so is everyone!) Well, Goldman Sachs put out a pretty unequivocal opinion about it today. Despite the market being at all-time highs when the country is in a recession and unemployment massive, the bank says that the S&P 500 will rise another 7% to close out the year. The only damper in the bank’s forecast is the election. Goldman says it is assuming a Democratic victory, and that could cause higher taxes that could dent the market a bit. GS also says Treasury yields will fall to 1.1% by the end of the year.
FINSUM: So we have two big competing feelings here. On the one hand, with the Fed so strongly in support of markets (and another fiscal stimulus likely), it seems like it could be smooth sailing. On the other hand, 51% of the entire market’s gain since the bottom in March has come from five stocks. On the whole, we think gains are more likely than losses.
It is a great time to be an investment bank. That fact became very clear last week when Goldman Sachs and Morgan Stanley earnings destroyed those of more traditional lenders like Bank of America, JP Morgan Chase, and Wells Fargo. Goldman, for instance, may be a great buy. It has much less main street lending exposure than regular banks, and has booming underwriting and trading businesses that are benefitting from low rates and market volatility. Some nice summary comments from an analyst at JMP Securities, saying “Goldman had a phenomenal quarter that allowed the firm to pad its legal reserves and conservatively position itself on loan losses … The bigger story is where the firm is going … Goldman is the biggest transformation story in finance, and the pandemic hasn’t derailed that”.
FINSUM: Firstly, these earnings came with all their employees working from home. So a 50% outperformance versus expectations with home-based traders. To us that is a sign of excellent management. More generally, their business mix—with a majority of institutional and growing, but not huge, consumer-facing revenue lines—seems ideal for the current environment. The stock is also priced below book value.