The bull market still has room to advance, but a 10% sell-off cannot be ruled out, says Goldman

The bull market still has room to advance, but a 10% sell-off cannot be ruled out, says Goldman - 1200px Bulle und Bär Frankfurt 1024x681The post-Labor Day stock market picture points to a tough race for tech stocks, and some are concerned that last week's mini-crash is the start of something bigger. .

It certainly doesn't help the news last week that Tesla (Tesla shares, + 2,78%) will not be added to the S&P 500 (SPX, -0,81%) next month. Shares of the electric car maker fell 12% in the pre-market.

10 statements in favor of the bull market

Goldman Sachs head of global equity strategy Peter Oppenheimer has listed 10 reasons why the bull market can go further, but also a warning.

  1. We are in the classic "hopeful" phase of a new investment cycle that has come in the wake of a deep recession.
  2. "The economic recovery looks more lasting as vaccines become more likely."
  3. Goldman's own economists recently revised their economic forecasts higher and the rest of Wall Street should follow suit.
  4. The bank's Bear Market Indicator, which was created in 2019, indicates low market risks even though valuations are high.
  5. Central banks and governments will continue to provide support to markets and economies, reducing the risk to investors.
  6. The equity risk premium, which is the expected return on equities relative to bonds, can decrease. Since the onset of the financial crisis, the decline in dividend yields has not kept pace with a "relentless" decline in bond yields.
  7. Negative real interest rates are favorable to equities. The relaunch of the zero nominal interest rate policy, coupled with extended upfront guidance from banks, creates "an environment of higher negative real interest rates." And that should support riskier assets like stocks during a recovery.
  8. Although inflation is not expected to increase in large quantities in the short to medium term, "stock markets can offer much more effective hedging against unexpected price increases."
  9. Compared to corporate debt, equity seems cheap, especially when it comes to companies with strong balance sheets.
  10. The digital revolution and how it will transform the economy and equity markets still has a long way to go. “Since many of these companies generate a large amount of liquidity and have strong balance sheets, they are also seen as relatively defensive and may continue to outperform even in a market correction,” says the strategist.


But unfortunately there are risks to this bullish thesis. Oppenheimer says equities could collapse if this rapid rebound in the market economy starts to falter. "In this case, we see room for a correction of perhaps up to 10% as investors re-enter the growth path in the coming months."