Goldman said in a Monday note that the bear market will likely spill over into next year with investors about to enter the hope phase of the decline.
The hope is that the Federal Reserve and central banks around the world will stop hiking interest rates after a year of rapid rate hikes. According to Bank of America, global central banks are expected to raise interest rates over the course of the next four years.
Recent gains in the stock market may be fleeting.
"Renewed optimism about a slower pace of rate increases has triggered a rally that has pushed global equities up nearly 5% from their levels in June, despite real interest rates in the US having increased by close to 85 basis points since then."
The idea of a sustainable reversal for stocks is a part of the hope phase.
Three key factors that typically signal a bottom for the stock market have not yet materialized, so Goldman is not sure if that type of rally is imminent.
Three factors are included.
This is the first thing. The lower valuations are consistent with the recession.
There are two There is a trough in the growth decline.
There are three. Interest rates peak.
Since the beginning of the year, valuations in equities have fallen but this doesn't mean they are cheap. Goldman said that the de-rating came from a high peak supported by low interest rates.
When considering US valuation measures are still above their long-term averages, those valuations should get worse. The US market is trading at 17x. The average over the last 20 years has been under 16x.
The note states that a continued slowdown is worse than a less bad economy. When growth is weak but moving towards stabilization is the best time to buy equity.
The Fed is expected to hike rates at its December meeting, which could lead to a peak in interest rates.
"Historically, equity markets are likely to recover close to the peak in interest rates and inflation, but they often weaken into the final rate rises (as growth expectations diminish)," according to the report.
All Rights Reserved © 2024
