Despite the enormity of Monday’s global stock market crash, which has thrown investors for a loop over the past few days, Goldman Sachs still sees opportunities in the equity markets.
Following the massive two-day stock meltdown, your first instinct might be to stay far, far away from the equity markets.
Goldman Sachs disagrees. It argues that, if anything, the temporary weakness created more investment opportunities.Goldman Sachs equities strategist David Kostin recommends favouring cyclical companies that boast low labour costs and strong balance sheets.
He said in a note on Tuesday that the stock market correction appears to be more technical and positioning-driven rather than fundamentally-based and reiterated Goldman Sachs S&P 500 year-end 2018 forecast of 2850 (+8%).
Kostin points out that factors such as tax reform, rising oil prices and a weakening U.S. dollar should be supportive of higher stock prices. In other words, those investors worrying the Dow’s crash from its record highs is signalling a looming recession that crushes profit margins should simmer down a bit.
The catalyst for Monday’s selloff came as bond yields spiked after the U.S. added 200,000 jobs to payrolls in January, above forecasts, and yearly wage gains rose at the fastest pace since the Great Recession of 2008-2009. For many traders, the wage gains were a sign the Federal Reserve will have to pick up the pace of its rate hikes.