Goldman Sachs: How to invest in higher interest rate cycle?
Goldman sachs believes that overseas markets are at the inflection point of a major change in investment structure.
Goldman sachs believes stocks will be flatter after the long bull market that began in 2009. It is contributed to three reasons:
First, on the valuation side, stocks are very expensive right now. The capitalisation of global equity markets as a share of global GDP has reached record levels. High valuations mean low returns in the long run.
High valuations now affect all major asset classes. Stocks and bonds are in the highest percentile of historical valuations for the first time since the late 1920s. Returns on financial assets will be lower in coming years.
Second, interest rates have reached historic lows and are starting to rise. Investors can't rely on falling interest rates to drive stocks or other financial assets higher this cycle.
Third, corporate profit margins are historically high. But higher costs, including Labour, are having an impact. Differentiation based on profit margins is likely to become more important.
Goldman sachs believes stocks will be flatter after the long bull market that began in 2009. It is contributed to three reasons:
First, on the valuation side, stocks are very expensive right now. The capitalisation of global equity markets as a share of global GDP has reached record levels. High valuations mean low returns in the long run.
High valuations now affect all major asset classes. Stocks and bonds are in the highest percentile of historical valuations for the first time since the late 1920s. Returns on financial assets will be lower in coming years.
Second, interest rates have reached historic lows and are starting to rise. Investors can't rely on falling interest rates to drive stocks or other financial assets higher this cycle.
Third, corporate profit margins are historically high. But higher costs, including Labour, are having an impact. Differentiation based on profit margins is likely to become more important.
Interest rates are at a major inflection point
Goldman sachs notes that global interest rates are at a major inflection point.
The inflationary transition, coupled with more hawkish central banks, has led to a sharp decline in the share of global negative-yielding bonds: from around 25% at their peak to 5%, and the value of these bonds has fallen from a peak of $18 trillion three years ago to around $5 trillion today.
As interest rates rise, valuations will fall and earnings will be a bigger driver of stocks.
The inflationary transition, coupled with more hawkish central banks, has led to a sharp decline in the share of global negative-yielding bonds: from around 25% at their peak to 5%, and the value of these bonds has fallen from a peak of $18 trillion three years ago to around $5 trillion today.
As interest rates rise, valuations will fall and earnings will be a bigger driver of stocks.
Stock market value style turns
Growth stocks, notably technology stocks, were the biggest winners in the last market cycle.
As inflation expectations have picked up in recent months, the market has shifted toward value. Sectors with a positive correlation to inflation expectations, such as energy, banking and resources, are doing relatively well.
Goldman sachs notes that despite the rally, some value stocks are still cheap. In the US and Europe, the energy sector remains at a record discount and further repricing is likely ahead.
But for investors, as the size of the traditional value sector declines, the relevant investment opportunities are more difficult to grasp. Before the financial crisis, banks and energy stocks were about three times the size of the technology sector; The tech industry is now about twice the size of banking and energy combined.
As inflation expectations have picked up in recent months, the market has shifted toward value. Sectors with a positive correlation to inflation expectations, such as energy, banking and resources, are doing relatively well.
Goldman sachs notes that despite the rally, some value stocks are still cheap. In the US and Europe, the energy sector remains at a record discount and further repricing is likely ahead.
But for investors, as the size of the traditional value sector declines, the relevant investment opportunities are more difficult to grasp. Before the financial crisis, banks and energy stocks were about three times the size of the technology sector; The tech industry is now about twice the size of banking and energy combined.
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Arenlar12 : nice
howinvest : Kinda forgot about how over leveraged most of the big banks are in the market or how about after the the whole 2008 crap they never fixed the market just piled money into it and tried to bury there mess ups. Once this thing blows up most of these banks will be gone. And if the banks are doing well why are a lot of them closing down branches? Being investigated by the DOJ? You should also say how banks robbed us poor people in taking 6.13 Billion dollars during a pandemic when people were getting laid off and were trying to get by. Banks and Wall Street with the fed have made this mess and as a direct result inflation has gone up.