Goldman Sachs strategists warn that stocks are far from bottoming

I know that predictions are often a rather speculative topic, as they are often words thrown into the wind that are not backed up by anything. In this case, however, I was inspired by a cautionary prediction by the giant Goldman Sachs, which also backs up its words with indicators and historical examples, which I found interesting and would like to share with you. In short, Goldman expects more 'pain' and downturns, but they back up their arguments.

Goldman Sachs $GS+0.1%

Goldman Sachs is a global investment banking firm that does securities management, investment banking, investment management and other financial services business, primarily with institutional clients. Goldman Sachs was founded in 1869, making it a very experienced bank that has been through a lot.

  • Global equities are experiencing their worst run since the European debt crisis a decade ago, and Goldman Sachs strategists are among those warning that a further fall in equities is possible.
  • To begin with, I need to introduce one index so that everything is properly understood. Indeed, Goldmani mentions the MSCI All Country World Index in its report.

What is the MSCI All Country World Index?

The MSCI ACWI is a stock index that tracks nearly 3,000 stocks in 48 developed and emerging countries. The MSCI ACWI Index is used as a benchmark for global equity funds and as a guide for asset allocation. Individual investors can access the index through ETFs that replicate its performance. Through Wednesday, the index had fallen for 12 straight days, its longest losing stretch since 2011, a period when the burden of government debt has thrown the eurozone's viability into doubt.

The decline in this ''gauge'' is quickly erasing a rebound since mid-June that the Goldman Sachs team led by Peter Oppenheimer described as a ''bear market rally.''

"Its duration and magnitude were not unusual compared to the experience of previous decades," the strategists wrote in a note. "We expect further weakness and bumpy markets before a decisive bottom is formed."

The MSCI All Country World Index is down more than 9% since mid-August and would reach its lowest level since the pandemic plunge in 2020 if it falls past the June low. A number of risks are at play including the Federal Reserve tightening monetary policy to fight inflation, the European energy crisis and China's economic slowdown.

"The short-term horizon is bearish, and markets typically fall sharply in September and October," said Chris Wood, global head of equity strategy at Jefferies LLC.

Some technical measures suggest a pause in the downside is possible. Over the past two decades, the MSCI All Country World Index has jumped an average of at least 1% in 10 to 20 days after a multi-day (averaging about 10 daily declines) losing streak, according to the data. That came true this time as well - after a series of declines, the index gained over 3% to end the week in the black.

For now, caution seems to remain the watchword: dollar strength rippled through global markets on Wednesday, Treasury yields saw expectations of a bloated Fed rise, and an Asian equity index slipped to levels last seen in 2020.

The big question remains "inflation and how central banks need to respond to it." Meanwhile, value stocks have maintained above-average performance relative to their growth counterparts amid weakening economic conditions, Goldman strategists wrote. Goldman economists predict a one-in-three chance of a recession in the coming year, and "history shows that value stocks outperform growth ones around the start of a recession," the strategists wrote.

Conclusion

Do the words of Goldman Sachs make sense to you? Is it possible to grasp historical indicators and examples like this that may (or may not) be reflective for the current period? What do you think? Personally, I don't want to hold on to history too much, but I still believe in some downturns. Personally, I'm not so much based on historical data, but I don't see signs of marked improvement, which keeps me steady and in caution mode. Goldman expects declines based on the MSCI All Country World Index, which has historically shown us signs of possible weakness, and they also mention persistent inflationary pressures, the Fed and other rates, China's economy, the energy crisis, and finally they cite an example from past crises where value stocks outperformed growth stocks, which is happening now.

Please note that this is not financial advice. Every investment must undergo a thorough analysis.

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