Goldman turns bullish on both stocks and bonds
Goldman Sachs has told clients that both stock and bond markets are well positioned, removing the need to pick between them. Strategist Christian Mueller-Glissmann recommended an overweight position in stocks for the next three months and described bonds as a buy over the next year. The upgrade to global equities was also reported by several other outlets, including Yahoo Finance UK, The Economic Times, BigGo Finance, GuruFocus and The Wealth Advisor.[S1][S2][S3][S4][S5][S6]
Mueller-Glissmann argued that earnings growth continues to support equities and that the recent drop in valuations has made the risk-reward balance more favourable ahead of the third-quarter earnings season. He noted that global equities have traded in a narrow range even as underlying earnings grew strongly, because rising bond yields pushed valuations lower.[S1]
Earnings season and bond yields in focus
This week marks a busy stretch for quarterly results, as UnitedHealth joins the six biggest U.S. banks in reporting. Those lenders are Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, Wells Fargo and Citigroup. Forecasts point to a robust showing, with FactSet figures indicating roughly 30% growth in third-quarter earnings compared with the same period a year earlier.[S1]
Last week, the 10-year U.S. Treasury note and the 30-year bond reached yields not seen since 2002. The 10-year yield has gained over 60 basis points since Aug. 25, and the 30-year yield is up 44 basis points. Goldman noted that these shifts have enhanced the appeal of longer-dated bonds, prompting the firm to raise its rating on the asset class.[S1]
Goldman argued that its base case of easing inflation, energy prices having peaked and a dovish stance from central banks makes bond allocations increasingly appealing to investors with longer time horizons. This view emerges as Middle East unrest sustains high oil prices, fueling worries that the Federal Reserve may need to tighten further to bring inflation down.[S1]
