Almost every bank is now cautious (if not outright pessimistic) about U.S. stocks, confirming that the “May sell” narrative is well-founded.
After this earnings season, the S&P 500 is still down from a month ago, despite earnings reports that showed a number of companies outperforming record highs. In response, Zero Hedge sarcastically said that Wall Street is back to its favorite “hindsight” behavior, and here are three key “gray rhinoceroses” that Goldman Sachs strategist Chris Hussey listed that could cause U.S. stocks to fall “The event.
Hussey wrote in the “weekend” market intelligence report, the recent surge in U.S. stocks “gray rhinoceros” risk, resulting in the S&P 500 index throughout May trend is sluggish, not warm, May so far monthly cumulative decline of nearly 0.2%.
It is important to note that here we should not confuse the “gray rhinoceros” with the “black swan”, gray rhinoceros generally refers to bad things, but it is different from the black swan event is that people know that these things may happen but did not take any measures. The “gray rhinoceros” is a metaphor for a potential crisis with a high probability and huge impact.
According to Goldman Sachs, the gray rhinoceros events that the U.S. stock market will be dealing with this week include
- The rise in commodity and cryptocurrency prices. While the prices of these assets fell last week, with copper prices falling more than 3% last week, iron ore fell 1%, and crude oil futures fell 3%. In addition, some cryptocurrencies fell by as much as 50% last week.
- Inflation. The CPI and PPI releases last week continue to cause concern. At last week’s Goldman Sachs Global Staples Forum, participating fast-moving consumer goods (CPG) companies noted that inflationary headwinds may only get stronger.
- Valuation of the S&P 500. The S&P 500’s P/E ratio is holding at 22 times – which is high by historical standards. Chief strategist David Kostin (David Kostin) pointed out that even if corporate earnings continue to climb, this valuation level is unlikely to continue to rise.
As for how to stop these gray rhinos, Goldman notes that things are already making some headway. On the one hand, China has begun to introduce regulations aimed at curbing excessive speculation and asset prices. Also, the Fed side is poised to take a tighter monetary policy to curb the continued rise in inflation expectations – although Goldman Sachs’ David Mericle (David Mericle) believes the current “temporary” spike in inflation ” spike is unlikely to prompt the Fed to act. Here’s a chart from Goldman Sachs this week to illustrate when the bank thinks inflation is peaking.
As for the market’s “high” valuations, Goldman Sachs strategists said that perhaps last week’s trading action was a sign that investors are becoming more cautious and selective because of concerns about an impending gray rhino, even in the face of extremely strong earnings growth.
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