3 factors to watch for when markets are ready to rebound

US, WASHINGTON (ORDO NEWS) — Despite the ravages of the coronavirus pandemic in the financial markets, analysts at Goldman Sachs (NYSE: GS ) continue to expect the US stock market to end the year up about 20% according to a recent analysis note.

“From a strategic point of view, we continue to think that the S&P 500 will increase to 3,000 points by the end of the year,” wrote analysts for the bank.

“From a tactical point of view, however, we think it is likely that the market will go down in the coming weeks, and we warn investors against the continuation of this recovery.”

To really confirm that the worst is over for the financial markets, Goldman Sachs recommends monitoring 3 factors:

  • The spread of the virus in the United States must begin to slow, so that one can understand the ultimate economic impact of the virus and containment efforts.
  • It must be proven that the “extraordinary measures” taken by the Federal Reserve and Congress to support the US economy are sufficient. Although the will of political decision-makers to use all the tools at their disposal is clear, only time will tell to what extent actions will succeed in limiting failures, [business] closings and layoffs
  • Investor sentiment and positioning must be at a low point. Goldman analysts refer to the bank’s US Equity Sentiment Indicator, which combines nine measures of equity positioning, noting that it has only fallen 1.4 standard deviations from standard deviations between -2 and -3 during recent corrections.

Finally, note that Goldman analysts are also warning investors of another negative factor to take into account for stocks in the future: the sharp reduction in share buybacks by companies. They point out that nearly 50 US companies have suspended buyouts of existing shares in the past few weeks, “which represents $ 190 billion in buybacks, or almost 25% of the total for 2019”.

“Redemptions have been the largest source of demand for US stocks in each of the past few years, and we believe greater volatility and falling prices are among the likely consequences of reduced redemptions.”


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