Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Goldman Managers Say Buy U.S. Stocks Despite Dot-Com Valuations

Published 01/11/2021, 10:15 AM
Updated 01/11/2021, 10:36 AM
© Reuters.  Goldman Managers Say Buy U.S. Stocks Despite Dot-Com Valuations

© Reuters. Goldman Managers Say Buy U.S. Stocks Despite Dot-Com Valuations

(Bloomberg) -- U.S. stocks are the most expensive since the dot-com bubble, but to Goldman Sachs Group Inc (NYSE:GS).’s $575 billion wealth management division, they’re still the best game in town.

Strategists there are telling clients to cast aside valuation worries as the S&P 500 soars to records through the pandemic. It’s all justified in a world of rock-bottom interest rates and where U.S. profit growth is faster than just about anywhere.

“When we look at these companies, they’ve not reached the types of valuations that would imply a fundamental scenario that just defies reason,” Brett Nelson, head of tactical asset allocation for the group, said on a call with reporters on Friday. “That was the case back in the late 1990s.”

Goldman’s wealth-management team says they expect the S&P 500 to post a return of about 8% this year on earnings growth of about 26%, which is slightly above consensus. While U.S. equities currently trade near forward price-to-earnings levels last seen in 2000, it says the key difference is that some of today’s most popular stocks, such as Apple Inc (NASDAQ:AAPL). and Facebook Inc (NASDAQ:FB)., have positive free cash flows.

Conviction on the U.S. recovery is spurring strategists to go all-in on America First trades, recommending cheaper value shares and small-cap U.S. stocks. Equities outside the U.S. may trade at a discount to the S&P 500, but Goldman’s strategists say valuation concerns are no reason to overweight European or emerging-market stocks which have inferior earnings potential.

Reflation trades are the talk of Wall Street in the wake of last week’s Georgia victories for the Democrats -- making it easier to push through more aggressive fiscal measures. In the view of Goldman, however, the Democrats’ control of the Senate won’t guarantee passage of the more aggressive fiscal policies, another bullish set-up for equities.

“Our view is that it’s very much a government that is divided between Republicans and Democrats, and it’s very tight,” said Sharmin Mossavar-Rahmani, chief investment officer for wealth management at Goldman Sachs.

Another reason to overweight equities: Goldman projects negative returns for Treasuries in 2021 thanks to the global economic recovery, already low rates and stimulus measures.

“That’s the first time we’ve ever forecast negative returns for U.S. Treasuries over a five-year period going back to the Great Financial Crisis,” said Nelson.

While 10-year benchmark yields are expected to rise, they’re unlikely to reach a 3% tipping point that would tighten financial conditions and undermine the case for equities, Goldman’s strategists said.

©2021 Bloomberg L.P.

 

Latest comments

printing goes on
Funny, reminds me of those articles which point out how doing 100% the opposite to what goldman recommends is more profitable.
Sure, why not inflate the bubble more
Cant trust names that trade on the dark pool
And when it all fails goldman will get bailed out... because they own washington...
Sure... listen to goldman the most corrupt firm on wallstreet
Shameless Wall Street profiteers will tell clients to remain invested in growth stocks even at the height of dotcom-level valuations. For them, it's always a bargain... until it isn't.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.