Goldman Sachs analysts have said they remain confident about US and global stocks thanks to the pick-up in economic growth, predicting a 10% increase in the S&P 500 from current levels over the next 12 months.
However, analysts led by Christian Mueller-Glissmann said in a note on Thursday returns will be considerably slower from here than during the stock market’s rapid recovery from the coronavirus crash in 2020. And they said bond yields shooting higher could start to weigh on growth.
The 10% growth forecast for the S&P 500 index over the next 12 months – which would take it to around 4,300 from 3,910 currently – would be considered stellar in normal times. But it pales in comparison to the index’s rise of more than 60% over the last year, as central banks pumped cash into the economy.
Goldman said it felt most positive about “procyclical” and non-US stocks, which are poised to benefit the most from rapid global growth.
It said there was further to go in the rotation into so-called value stocks out of the fast-growing companies that did so well during the coronavirus slump, such as the big American tech firms like Google, Amazon, Apple and Netflix.
The Wall Street giant thinks global gross domestic product will grow 6.8% in 2021 after a 3.4% drop in 2020, compared to consensus forecasts of 5.6% growth.
Goldman’s analysts predicted Asian stocks in particular will benefit from this rapid rebound. They foresee 14.8% growth in the MSCI Asia Pacific index that excludes Japanese stocks over the next 12 months. And they said near-term growth over the next 3 months would be much quicker for Asian stocks than the S&P 500.
However, the note said that investors should “watch their tails” and remain cautious about the possibility of rising bond yields and slower-than-expected growth.
US bond yields have already risen markedly over the last two months in response to stronger growth and inflation expectations, with the key 10-year yield up to 1.658% from around 0.9% at the start of 2021.
Goldman a meaningful move higher could “start to weigh on growth.” It added: “In this scenario a 60/40 [stocks to bonds] portfolio would suffer most. Most assets post negative returns.”
Yet the analysts stressed that, in Goldman’s base-case scenario, “we expect growth optimism to remain high and concerns over hawkish monetary policy, or inflation risk to fade.”
They wrote: “Our economists remain above consensus for global growth and procyclical assets are not yet fully reflecting the strong recovery we expect, in our view.”