February 19 (Reuters) – Goldman Sachs raised its recommendation for global stocks to “overweight” from “neutral”, citing in particular the outlook for economic growth and the recovery in manufacturing activity.
Recent data has shown signs of improving global manufacturing activity, including in the United States, and market participants will evaluate upcoming economic data to determine the trajectory of interest rate cuts from major central banks .
“We expect growth to become a more important driver of risk appetite and correlations between stocks and bonds to be more negative this year,” Goldman said in a Feb. 16 note.
The brokerage adds that while monetary policy easing cycles have historically been favorable to risk assets, they may be less so this year, “as markets have already priced in much of the easing of rate”.
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According to CME’s FedWatch barometer, the probability of a 25 basis point rate cut by the US Federal Reserve (Fed) in June is estimated at 51.3%.
However, global earnings growth potential remains “relatively small” due to lower revenue growth and little capacity for margin improvement, Goldman said.
“If stocks have digested the rise in bond yields so far with better growth, there is a risk of returning to a regime of ‘good news is bad news,'” Goldman warned.
The brokerage also downgraded global credit from “neutral” to “underweight.”
“Tight credit spreads are likely to become a speed limit for returns,” she noted.
Goldman reiterated its “neutral” stance for longer-term global bonds and commodities.
(Written by Siddarth S in Bangalore; French version Diana Mandiá, edited by Blandine Hénault)
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