By Senad Karaahmetovic
Goldman Sachs strategist Peter Oppenheimer has told the bank’s clients to prepare for the “bumpy road to recovery”. Among other things, Goldman's two powerful indicators are yet to issue signals that the bear market is over.
Goldman’s strategists use the fundamental-based Bull/Bear Indicator and sentiment-based Risk Appetite Indicator to help identify potential inflection points.
“Combining these can provide powerful signals when they are both close to extremes. We have not yet met these conditions, suggesting further bumpy markets before a decisive trough is established,” Oppenheimer told clients in a note.
The strategist mentions low valuations, negative positioning, reaching a peak in inflation and interest rates, as well as getting close to the worst point in the economic cycle, as some conditions that need to be met to believe the bottom has been seen.
Moreover, Oppenheimer warned clients that it is difficult to distinguish between a bear market rally and a genuine inflection into a new bull market in real-time. This is because both look and feel very similar in the initial stages.
“Something has to give: either returns stay low and volatile for a long time or the market is likely to re-test its lows before a genuine trough is established.”
Once the market bottom is in, the upcoming bull market cycle should be “Fatter & Flatter” than the last, adds Oppenheimer, and will likely generate lower aggregate returns for investors.