Goldman Sachs Says
Buy Stocks on Any Market Weakness
By Namitha Jagadeesh
January 19, 2021, 11:19 AM GMT
Tactical risks of market correction are rising, broker
says
Reflationary environment is likely to support
buying the dip
While the risk of a correction in stocks is increasing, stimulus measures and the event-driven
nature of the economic crisis make a bear market unlikely, strategists at
Goldman Sachs Group Inc. said, recommending using any dips to buy equities.
Instead of fearing bear territory, Goldman strategists led
by Peter Oppenheimer said in a note that the market is in the early stages of a bull phase following an “explosive”
valuations-led rebound in equities that tends to start in recession and
marks the start of a new cycle.
“The market is rising on good news but choosing to largely
ignore weaker data and rising infection rates,” the strategists wrote on
Tuesday. “There is a risk of a
correction, but without a bear market inflection.’
Global equities have surged more than 70% since a
coronavirus-induced selloff in March last year, reaching a record earlier
this month on bets of a vaccine-fueled
economic bounce and expanding U.S.
stimulus. The sharp rebound is “almost identical” to the recovery from the
trough of the financial crisis in 2009, which was followed by a correction,
Goldman notes.
Global equity rebound similar to 2009, which was followed by correction
The MSCI All-Country World Index rallied strongly from a
March 2009 low, before entering a correction in May the following year. Still,
circumstances are different this time around, Goldman said.
While the global financial crisis generated a “structural
bear market,” the coronavirus-led recession and selloff were driven by events,
according to the firm.
“The unprecedented speed and scale of policy support during
the pandemic, designed to reduce the risk of longer-term scarring, has also
reduced the risks of structural scarring and tail risks for investors, allowing
them to ‘look through’ the downturn into a recovery,” the strategists wrote.
— With assistance by Ksenia Galouchko
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