Bear rejects his appeal until 3 things happen

  • The global bear market that hit stocks in 2022 may extend into next year, according to Goldman Sachs.
  • The bank said investors are about to enter a “hope” phase as attention turns to a slowdown in rate hikes.
  • These are the three factors that Goldman Sachs wants to see the bear market finally over.

Goldman Sachs said in a note on Monday that the bear market that hit global equities in 2022 is likely to extend into next year as investors approach a “hopeful” phase of decline.

Part of that hope is the idea that the Fed and central banks around the world will soon slow down, pause, or even cut interest rates after an astonishing year of rapid and aggressive rate increases. According to Bank of America, global central banks are expected to raise interest rates 267 times by the end of 2022.

But that hope may be fading, especially for the recent gains in the stock market.

“Renewed optimism about the slowing pace of interest rate increases has led to a rally to the upside [global] Equities are up about 5% from their June levels, even though US real interest rates have risen nearly 85 basis points since then and US 10-year yields have risen by more than 50 basis points,” said Peter Oppenheimer of Goldman. sax.

Another part of the hopeful phase is the simple notion that stocks will finally stop falling and make a sustainable reversal to recoup some of the painful losses they suffered this year.

But Goldman Sachs is not convinced that this kind of rally is imminent, as three key factors that usually point to stock bottoming have yet to materialize.

These three factors include:

1. Lower ratings are consistent with recession results

2. Decrease in growth momentum deterioration

3. Peak interest rates

“Valuations in stocks have fallen a lot since the beginning of this year, but that’s not to say they’re cheap. The problem is that the downgrade came from an unusually high peak supported by record low interest rates.” Goldman said of the current market valuations.

And if interest rates continue to rise, those valuations should only get worse, especially when you consider that US valuation metrics remain above their long-term averages. “The U.S. market is back to a 17x P/E. The 20-year average was just under 16x,” Oppenheimer explained.

And in terms of worsening economic growth, a continued slowdown is worse than things are “getting worse,” according to the note. “In general, history suggests that the worst time to buy stocks is when growth is contracting and momentum is deteriorating, and the best time is when growth is weak but trending toward stabilization.”

Finally, the peak of interest rates may still be a long way off with expectations that the Federal Reserve will raise interest rates again at the FOMC meeting this coming December.

“Historically, stock markets are likely to rebound near peaks in interest rates and inflation, but they often weaken as final interest rates rise (as growth expectations deteriorate),” Oppenheimer said.

Leave a Reply

%d bloggers like this: