U.S. economic growth may top out, and with the U.S. government having imposed a tax on the rich, investment bank – Goldman Sachs expects U.S. stocks to fall in the next 2 to 3 months, but adds that this trend is relatively short-lived and may reverse in a few quarters.
Overseas epidemic rebound, the U.S. stock record highs, how long can such momentum last? It seems that more and more big Wall Street investors believe that the fire will soon be extinguished.
Investment bank – Morgan Stanley (commonly known as “Big Morgan” in the financial world) said that given the expansion of vaccination, inflation, economic growth is close to the peak, investors should be prepared for “a tougher, more dramatic, more limited upside summer ” be prepared. Subsequently, Goldman Sachs, which was originally bullish on U.S. stocks, also followed the views of DAMO, that the U.S. stock adjustment wave is approaching.
Goldman Sachs chief U.S. stock strategist David Kostin was quoted in foreign media as pointing out that the recent focus is on topping out U.S. economic growth and Biden’s tax on the rich, and that investors who buy the S&P 500 when economic growth peaks typically realize negative returns in the short term and weaker 12-month returns. In line with this, Goldman Sachs previously set a year-end target price for the S&P 500 at 4,300 points, just 3% upside from the current point.
Goldman Sachs believes that U.S. GDP growth will reach a peak level of 10.5% in the second quarter, and while economic growth will remain above trend and generally expected in the coming quarters, the pace of growth will top out a few weeks after that as the impetus from fiscal stimulus and the reopening of the economy begins to wane.
Looking at history, over the past 40 years, when the ISM manufacturing index exceeded 60 (which is equivalent to the top of economic growth), investors who bought the S&P 500 returned a median of about -1% over the next month and only about 3% over the next year. With the latest ISM manufacturing index at 64.7, the highest level in nearly 40 years, Goldman Sachs has a medium-term target price of 4,100 points for the S&P 500. In other words, the bank believes that U.S. stocks will fall in the next 2 to 3 months.
Historical experience also shows that in the United States in the past before the capital gains tax rate increase, the S&P 500 index returns are also very weak. Of course, the Biden tax increase is not good news for the U.S. stock market. Goldman Sachs estimates that the wealthiest U.S. households currently hold $1 trillion to $1.5 trillion in unrealized equity capital gains, which is equivalent to 3% of the total market value of U.S. stocks and about 30% of the average monthly trading volume of the S&P 500. Given that the wealthy are likely to sell their assets before the tax hike, U.S. stocks may fall as a result, but Goldman Sachs believes that this trend will be short-lived and that the U.S. stock trend can be reversed in a few quarters. Despite the expected slowdown in U.S. economic growth in the second half of the year, the bank added, as long as economic growth remains positive, U.S. stocks still have the potential to rise.
Andrew Sheets, chief cross-asset strategist at Morgan Stanley, said it had previously believed there would be a strong “V-shaped” recovery, but with more strong economic data and the implementation of the $1.9 trillion U.S. stimulus package, the market is now more widely expected to see stronger economic growth. Given that the new crown epidemic has been going on for more than a year now, the pace of change in this growth will soon peak.
Morgan Stanley believes that while there is no danger of runaway prices, given the forward-looking nature of the market, the market may react to the data at that time. Historically, when inflation rises back above trend, previously rising stocks usually underperform.
In addition, the seasonal factors of the stock market is also perturbed. April market seasonal performance is usually good, but as the “Sell in May” (Sell in May & Run Away) stock market adage, May to September seasonal performance will become worse, which provides a reason for investors to reduce their positions. The current market price level is equally problematic. Morgan Stanley said that the year-to-date rise has reached the bank’s upward target, the future upside becomes extremely limited.
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