One would think that after last week’s market rout, the worst in years, that Goldman clients would have just one question: why just a month after you, chief Goldman strategist David Kostin said to “Buy Stocks Because Hedge Funds Suck; Also Chase Momentum And Beta“, are stocks crashing? No really: this is literally what Kostin said in the first days of September: “investors should buy stocks which should benefit from a combination of beta, momentum, and popularity as funds attempt to remedy their weak YTD performance heading into late 2014.” Turns out frontrunning the world’s most overpaid money losers wasn’t such a great strategy after all. In any event, that is not what Goldman’s clients are asking. Instead as David Kostin informs us in his weekly letter to Jim Hanson’s beloved creations, “every client inquiry focused on the same four topics: global growth, FX, oil, and small-caps.”
So while said clients figure out just what the right question is, here are the wrong ones, aka Goldman’s damage control:
Policymakers focus on anemic growth in Europe and Japan while US economic and company fundamentals remain strong. Investors should focus on ‘American exceptionalism’ and own stocks with high domestic sales. We forecast S&P 500 will rebound by 7% to reach our year-end target of 2050. Buybacks have been the major source of demand for US equities during the past four years with S&P 500 firms repurchasing more than $1.5 trillion of shares. Peak 3Q reporting season is the next three weeks. Halloween will be the end of the blackout period for most firms. In recent years, 25% of annual buybacks have occurred in November and December. Conversations we are having with clients: Confusion over growth, FX, oil, and small-caps
“Whiplash’ is how one veteran investor described this week’s market. S&P 500 fell 1.5% on Tuesday as the IMF’s newest World Economic Outlook discussed the weak prospects for global growth. Wednesday registered 2014’s best daily return ( 1.8%) supported by the release of Fed minutes that noted US growth ‘might be slower than they expected if foreign economic growth came in weaker than anticipated’. The clear implication: Interest rates might be held lower for longer than market participants expected. This comfort was short-lived – S&P 500 sank 2% on Thursday and 1% on Friday.
Four topics dominated client discussions this week: (1) The uneven global economic outlook with the US expanding above-trend, China slowing, and Europe barely growing; (2) US dollar strength and a euro rapidly moving towards parity by 2017; (3) the bear market in crude oil with Brent plunging by more than 20% since June; and (4) the dismal returns for US small-cap stocks with the Russell 2000 index lagging by 13% YTD for the largest underperformance vs. the S&P 500 since the Tech bubble in 2000.
This post was published at Zero Hedge on 10/11/2014.
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