Goldman turns positive on global equities

investing.com:

Investing.com — It’s time to take a more positive view on equity markets, according to Goldman Sachs, with the influential investment bank shifting to an overweight stance after starting the year neutral on the asset class.

The cross-asset performance has had a more procyclical feel in recent weeks, the bank said in a note dated Feb. 16, due to stronger-than-expected U.S. data as well as signs of an impending global manufacturing recovery.

Such a recovery has historically triggered a strong ‘risk-on’ rotation across assets, and usually after a recession.

Goldman noted that central bank cutting cycles have also tended to be supportive for risky assets, although the expected uplift may be less so this year given markets have already factored in much of the rates relief.

While Goldman has upgraded its stance, the investment bank only expects modest equity returns, saying a key challenge is that sentiment and positioning are already quite bullish and risk premia are low.

To balance the equities upgrade, Goldman has downgraded its stance on credit to underweight from neutral, saying the risk/reward for equities seems much more attractive.

“Tight spreads create a speed limit for credit and it has more negative convexity late cycle. Equity valuations are also elevated, especially in the U.S., but are less of a binding constraint and earnings could see tailwinds from stronger growth,” the bank said, in a note.