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Markets Seeing 'Somewhat Healthy' Correction, Goldman Sachs Says

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Bloomberg Aug 5 16:33 · 81.4k Views

Goldman Sachs' Christian Mueller-Glissmann says the market situation is showing a "somewhat healthy correction." Speaking on Bloomberg Television, he also says the US data weakness was a surprise, but Goldman Sachs' economists are "not that worried."

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  • 00:00 It's been a long time that we had a correction and I think that's important to keep in mind and and we turn tactically a bit more cautious 3-4 weeks ago roughly
  • 00:08 and there were three reasons.
  • 00:09 I think the first reason was the US economy and generally U.S.
  • 00:13 data has been weaker and it's been weaker for two months now.
  • 00:16 This is not the first print we got
  • 00:18 and the market has treated that as bad news, as good news.
  • 00:21 If anything, we actually saw the S&P futures positioning move more bullish in the last two months.
  • 00:27 So, so you have this disconnect.
  • 00:28 Bad news was good news and the market was actually getting more bullish.
  • 00:31 That was the first concern we had.
  • 00:33 Eventually the Fed buffer cannot be big enough or that the bad news becomes bad news.
  • 00:38 The second reason was valuation expansion in the tech space.
  • 00:41 I think last year, the Magnificent 7, a lot of the performance was actually driven by earnings revisions.
  • 00:46 This year a lot by valuation.
  • 00:48 So our team, David Costin.
  • 00:50 And so they were really highlighting this earnings season high bar to beat.
  • 00:54 And the third reason was the US election uncertainty picking up.
  • 00:57 So all, all of these factors have actually materialized and they've contributed.
  • 01:01 But of course, as you were saying, the most important has been the US data weakness.
  • 01:06 I think the US data weakness has also surprised us a bit.
  • 01:10 Our economists are not that worried and we can discuss that.
  • 01:13 But All in all, I think we're dealing with a correction that it's a terrible word to use, but it's somewhat healthy.
  • 01:19 You've had a very strong run this year position was a bit too bullish.
  • 01:23 The data picture has been a bit more mixed.
  • 01:25 We have more election uncertainty coming up.
  • 01:27 And and I think
  • 01:28 to some extent it's, it's a healthy correction.
  • 01:31 A healthy correction of stocks perhaps is a 70 basis point move in the 10 year or the two year, I should say either one picker picker metric, they're both down about that.
  • 01:39 Is that a healthy correction?
  • 01:40 I think
  • 01:41 a bit to to what what Guy said earlier.
  • 01:43 I think it's, it's, it's a healthy or or or rational move
  • 01:47 in the sense that
  • 01:48 the market needs to price now downside convexity into rates.
  • 01:51 I think before there was a lot of focus on normalization cuts.
  • 01:55 Normalization cuts are steady,
  • 01:57 whereas if you have
  • 01:58 kind of
  • 01:59 reactive Fed cuts, we know that the Fed has a lot of buffer to potentially cut.
  • 02:04 You need to put in the probability of very large cuts now.
  • 02:07 So to some extent, again, it's somewhat rational.
  • 02:10 But that move I think is, is is tough to extrapolate from here with our base case, base case macro outlook because it really starts to move towards
  • 02:19 a higher probability of a recession.
  • 02:21 And to be clear, our economists have increased their probability of a recession.
  • 02:24 I think they were at 15%
  • 02:26 just before the week end, which is the unconditional probability.
  • 02:29 Now they're 25 percent.
  • 02:31 25% is still not a shocker.
  • 02:33 I think considering your very late cycle in some regards,
  • 02:37 that needs to be reflected by the bond market.
  • 02:39 So it's somewhat rational.