Displaying items by tag: Growth
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.
It has been a long, long, time since value stocks really had a shining moment. Growth has been outperforming value for over a decade now. However, strategists at JP Morgan say that value stocks may start to shine very soon. This underlying parts of this economy—weaker but still improving—are the exact conditions where value stocks traditionally shine. These pre-requisites for success seem likely to stay in place. There does not appear to be a second wave of infections brewing, there is ample government support for the economy, and economic data is trending more positively than negatively.
FINSUM: The typical rotation into value (such as in 2008-2009) takes over 100 days and has 18% upside. The logic here is sound, but we still wonder if value will outperform growth.
The OECD sounded a big alarm this week about the threat of coronavirus to the economy. The group of rich countries announced that coronavirus may have a devastating effect on the economy, cutting growth in half. The organization said that growth this year could shrink to 1.5% from its previous forecast of 2.9% growth. It said the outbreak and actions taken in China would cut global growth by 0.5 percentage points alone, not even factoring in the rest of the world’s outbreak and response.
FINSUM: So long as the virus keeps spreading and negative headlines keep coming, more and more economy-shrinking actions will follow. Markets will react in kind.
Many are currently having trouble choosing between growth and value stocks. On the one hand, growth stocks look outrageously expensive, yet have momentum on their side, while value stocks look like a great buy because of their discount compared to the market. However, there are a handful of stocks where you get the best of both. These stocks have both growth and value characteristics. Here are some of the diverse names to look at: General Motors, State Street, Marathon Petroleum, H&R Block, and Qualcomm.
FINSUM: If you can get good earnings growth and strong value in the same package, what is not to like?
Every investor is trying to figure out if coronavirus is going to have a major impact on markets this year, or will soon just be a forgotten blip. Goldman Sachs has weighed in on the issue and says investors should not worry much, as coronavirus’ impact will be “limited”. The bank says coronavirus could slow US growth by 0.5 percentage points in the first quarter, but that would easily be made up in Q2 and Q3. According to Goldman, “Investors who believe the economic consequences of the coronavirus will be limited should increase exposure to cyclicals and value stocks”.
FINSUM: We aren’t sure we entirely agree. A lot of this depends on how long the virus keeps China shut down. Growth there is not as great as during SARS in 2003, so this could actually lead to a global recession.