Wall Street strategies keep trying to calm investors down, calling their worries for U.S. economic slowdown voiced earlier as an overestimated. JPMorgan experts stated earlier that the likelihood of economic recession risk was exaggerated after the latest sell-off in equity markets in the United States. Similar calming words sound in Goldman Sachs now. Goldman strategies led by David Kostin say that the latest plunge in U.S. major stock indices showed a similar divergence between the equity market’s performance and macroeconomic data which points to the fact that economic recession fears were overvalued.
S&P500 yield turned negative for the latest 12 months, the first time since 2016 which historically correlates with 50 basis points in the Business activity index ISM (Institue of Supply Management Index), e.g. stagnation, Goldman noted. Although, the last month’s performance was positive for the index, reaching the level of 59.3 points which points to the sign of healthy economic growth.
From gross domestic product to corporate profits levels - there are no doubts that the economic growth would slow down next year without an acceleration in tax cuts. The key question is how deep would GDP ease its growth pace? According to Goldman's model, the market players priced in zero growth. And that is in a sharp contrast to Goldman economists’ GDP forecast which is around 2.5% for the next year.
“The latest equity markets’ performance anticipates a more sharp slowdown compared to our basic forecast - Kostin from Godman wrote in a recent strategical note. - Therefore, we consider that S&P500 has a short-term growth potential”.
S&P500 lost 13% of its value from the peak rate reached in September, and more than 4% since the beginning of January 2018, according to December 14 weekly close price. It;’s currently in the second corrective phase this year and it’s ‘getting ready’ for a worst yearly performance since the start of ‘the bullish’ market in 2009.
Goldman’s view is shared by the majority of Wall Street analysts, who expect a further growth in corporate profits, boosting the stock markets to fresh all-time high levels. According to a survey made at the end of November, the average assessment for S&P500 rate by the next year-end is placed around 3056 points which is 19% higher than the benchmark rate in the middle of December.