Markets Rebound, Growth Fears Overblown

Markets Rebound, Growth Fears Overblown

Wall Street strategists work to calm equity investors, saying their worries over the economy are overdone.

$SPY, $JPM, $GS

JPMorgan (NYSE:JPM) argues that the risk of an economic recession is “overpriced” with the latest stock sell-off.

Goldman Sachs (NYSE:GS) says, the decline in US stocks has opened up a rare divergence between the market’s performance and economic data, an indication that fears over a growth slowdown have gone too far.

The S&P 500’s (SPY) return over the last 12 months has turned negative for the 1st time since Y 2016, something that has historically corresponded to a reading of 50 in the Institute for Supply Management’s (ISM) manufacturing index, or stagnant growth.

By contrast, the factory gauge rose to 59.3 last month, a sign of healthy expansion.

From GDP (gross domestic product) to corporate earnings, there is little doubt that growth will decelerate next year without the boost of tax cuts.

The Big Q:  How much?

The Big A: Based on Goldman’s model, the market is predicting Zero growth. That contrasts with expected GDP growth of 2.5% next year expected by the firm’s economists.

“Recent equity market performance implies a more dramatic slowdown than our baseline,” Goldman wrote in a note published late Friday. “Accordingly, we believe there is short-term upside to the S&P 500.”

The S&P 500 is down nearly 11% from its record reached in September and the S&P 500 is in its 2nd correction of the year and poised for its worst annual performance since the Bull market started on 9 March 2009.

Goldman’s view is shared by the many Wall Street forecasters, who expect continued profit expansions to propel stocks to new highs.

In a survey conduced at the end of November, their average estimate is for the S&P 500 to climb to 3,100 by the end of next year. That is about 18% increase from recent marks.

Stay tuned…

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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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