Goldman Sachs says investors do not have to pick between stocks and bonds. Strategist Christian Mueller-Glissmann recommends overweighting stocks for three months and sees bonds as a buy over the next year, citing earnings growth and higher yields.
Goldman Sachs advised clients to be overweight stocks over the next three months. Strategist Christian Mueller-Glissmann also thinks bonds are a buy over the next year, so both markets look well-positioned to the bank.
Both asset classes have been volatile because tensions in the Middle East keep oil prices elevated. That raises concern that the Federal Reserve will have to raise interest rates further to tamp down inflation.
Earnings support the case for stocks
Mueller-Glissmann wrote in a note that "earnings growth remains supportive for equities", according to CNBC. He added that the recent valuation de-rating has improved asymmetry into the Q3 earnings season.
Earnings season kicks into full gear this week. UnitedHealth and the six largest U.S. banks, including Goldman Sachs, Morgan Stanley and JPMorgan Chase, are set to report. FactSet data points to nearly 30% third-quarter earnings growth from the year-earlier period.
Rising yields make bonds more attractive
Global equities in aggregate have been range-bound despite strong underlying earnings growth, Mueller-Glissmann said. As a result, they de-rated materially alongside rising bond yields.
Yields on the U.S. 10-year Treasury note and 30-year bond climbed to their highest level since 2002 last week. Since Aug. 25, the 10-year is up more than 60 basis points, while the 30-year has ripped 44 bps higher.
Those moves made longer-dated bonds attractive, according to Goldman, which led the bank to upgrade the asset class. The bank cites a macro baseline of inflation normalisation, peaking energy prices and dovish views on central banks.
Source: CNBC
Trading involves risk.
Risk Disclaimer
