Goldman Sees High Risk of Stock Market Correction on Virus Complacency

Goldman Sees High Risk of Stock Market Correction on Virus Complacency

Bloomberg  | Feb 20, 2020 21:06

Goldman Sees High Risk of Stock Market Correction on Virus Complacency

(Bloomberg) -- Investors may be underestimating the negative impact of the coronavirus on corporate earnings, which poses a threat to the stock market rally, according to Goldman Sachs Group Inc (NYSE:GS).’s chief equity strategist.

While coronavirus fears triggered a worldwide sell-off in January, the losses proved short-lived. Global equities are trading near record highs on optimism that the impact from the epidemic will be limited and China will step up support for its economy. Goldman’s Peter Oppenheimer cautions against complacency.

“Equity markets are looking increasingly exposed to near-term downward surprises to earnings growth,” Oppenheimer, chief global equity strategist at Goldman, wrote in a Feb. 19 note. “While a sustained bear market does not look likely, a near-term correction is looking much more probable.”

“Spillovers” from weaker Chinese demand are “dramatically more important” to regional and world economies compared with a decade or two earlier, and tourism alone accounts for 0.4% of global gross domestic product, according to Oppenheimer.

He estimates that a 1% drop in global sales-weighted GDP would cut European earnings by about 10%, turning them negative. The exposure of the Euro Stoxx 50 Index to China is about twice that of the S&P 500 due to such sectors as banks, automakers and luxury shares.

Companies too are starting to sound the alarm. Apple Inc (NASDAQ:AAPL). said this week it would miss its sales targets for the quarter because of the fallout from the coronavirus. Pernod Ricard (PA:PERP) SA last week cut its full-year growth forecast by about half, while today, Air France-KLM warned the outbreak will wipe as much as 200 million euros ($216 million) from earnings.

“In the context of relatively weak earnings growth, there’s probably too much complacency and we could see some negative earnings,” said Oppenheimer in an interview with Bloomberg TV on Tuesday. “And valuations are vulnerable to a setback.”

While the odds of a short-term correction are high, the resilience of the global economic cycle is likely to be supportive for equity markets on a relative basis over the next year and beyond, according to Goldman.

Powerful monetary easing by central banks around the world, including policy moves by the likes of Russia and Mexico this year, in addition to lower bond yields have kept the equity bull run going despite coronavirus concerns. The MSCI All-Country World Index surged to a new all-time high last week and both U.S. and European benchmarks closed at records on Wednesday.

Related News

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (India) English (Canada) English (Australia) English (South Africa) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+

Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.