Commentary: Paul Ebeling on Wall Street

Commentary: Paul Ebeling on Wall Street

$DIA, $SPY, $QQQ, $RUTX, $VXX, $GS

We agree with Goldie, the US stock market is going higher.

The MSM is backing away from its predictions of a recession. As now a Top Wall Street firm has aligned with our work and forecasting that there will not be a recession in Y 2020

Goldman Sachs aka Goldie (NYSE:GS) is forecasting that the slowdown in global growth which started in Y2018 is now nearing an end with up-sized growth exceeding consensus forecasts.

Goldman Sachs’ CE (chief economist) is now forecasting global GDP growth of 3.4% in Y 2020 after the firm’s expected global growth forecast of 3.1% for Y 2019, Vs the Atlanta Fed’s 1.4% GDP forecast.

Driving these numbers North are easier financial conditions, a break in the US-China trade dispute, and lowered uncertainty around BREXIT.

As I have stated many time in this column, the continued fears of recession by many market participants about a recession are premature. As the United States is close to another year of its longest GDP expansion on record.

Goldie’s CE sees only a 20% chance of a downturn in the US economy Vs cl a 33% chance as the consensus. The strong financial position of households and businesses in most advanced economies should keep the risks of a real recession low. That’s even with a forecast that China’s growth will moderate to just above 6% to just under 6%.

Goldman Sachs recently issued its S&P 500 forecast of 3,400 for Y 2020. And, that figure is not the highest among major Wall Street firms, but it is above consensus. That said, the S&P 500 was at 3,140.98 last look. That implies peak gains of just over 8% expected for stocks from current marks.

Goldman Sachs is also forecasting US growth of 2.3% in Y 2019 to be more or less the same in Ys 2020 and 2021. And, is forecasting US GDP growth of 2.3% in Y 2020 Vs 1.8% consensus, and 2.4% in Y 2021 Vs 1.9% consensus.

The report said: The risk of a global recession remains more limited than suggested by the flat yield curve, which partly reflects a structural decline in the term premium, and the low unemployment rate, whose predictive value for inflation and aggressive monetary tightening has fallen. We also take comfort from the absence of significant private sector financial deficits in all but a few advanced economies… Slightly better growth, limited recession risk, and friendly monetary policy should provide a decent background for financial markets in the early part of 2020. However, concerns about the impact of higher corporate taxes on profits could rise in the run up to the US presidential election. Even aside from politics, rising wage growth looks set to reduce profit margins over the next several years.

The report also noted that most major economies are running under their potential. The US is shown to be running just 0.1% under its potential, with China running 0.2% under its potential, followed by the Euroarea running 0.5% under its potential.

As far as what is attributed to the weakness in Y 2019, the report pointed to a succession of negative shocks to financial markets and business confidence that started with a sharp sell-off in global risk assets aka stocks in Q-4 of Y 2018 and the combined negative surprises in China and Europe meeting a Hawkish Fed policy shock at the time. The report even pointed out Fed Chairman Powell’s statement that the bank was “a long way from neutral” at the time and that the tightening led to a sharp slowdown in US and global aggregate demand growth.

As far as how Goldie compares to other firms making their early predictions for the S&P 500 in Y 2020, the most recent forecasts from the others are as follows:

  • BofA Merrill Lynch – 3,300
  • BMO Capital – 3,400
  • Canaccord Genuity – 3,350
  • Citigroup – 3,300
  • Credit Suisse – 3,425
  • Morgan Stanley – 3,000
  • UBS – 3,000

It is important to understand where the forecasts for the market based on today’s prices than towards the end of Y 2018.

The Key ETFs tracking the indexes showed that the DJIA was last seen up 20.4% and the S&P 500 was last seen up 25.4% so far in Y 2019.

Looking back to the prior peaks in September to October of Y 2018, before that year-end meltdown delivered the worst Q-4 in memory, the most recent peaks would show gains of only about 5% for the DJIA and about 7% for the S&P 500.

Have a terrific week.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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