• Goldman Sachs are bullish view on US equities. This is based the very high probability of positive returns during an expansion, and that data preceding previous recessions point to S&P price returns remaining attractive.
• Probability of a US recession is low at around 20% as the possible triggers – namely aggressive Fed tightening or economic imbalances – are remote. Imbalances are below average levels in the US with both households and banks deleveraging since the crisis.
• Demographics, labour productivity, export competitiveness and EPS growth all moving in favour of the US versus both other developed and emerging markets.
• US election analysis finds the third and fourth years of a presidential first term have attractive equity returns.
• A fairly extensive list of risks to their bullish view includes; geopolitical risk from China, escalating tensions in the Middle East or North Korea, cyberattacks and terrorism.
• Disinflation theme is expected to continue and largely driven by China. In the US they see no evidence of inflation responding to low unemployment rates.
• Goldman look at past pandemics to assess possible risks from the coronavirus. History shows an initial flight to quality but then fundamentals reassert over time.
Why does this matter? Goldman’s bullish view on US equities comes at a time of late-cycle expansion, stretched valuations and mounting risks to global growth from the coronavirus. If the US economy continues to post moderate growth and equities and corporate profits remain resilient this year President Trump will tout his economic management as a central pillar of his re-election campaign. [Bullish US equities]
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