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.