(Bloomberg) - Investors should see any correction in equities as a buying opportunity, rather than signaling the start of a bear market, according to Goldman Sachs Group Inc. strategists.
Although risk assets face a “significant headwind” from war in the Middle East and anxiety over artificial intelligence disruption, underlying economic resilience and robust earnings growth mean the depth and extent of a pullback will be limited, the team led by Peter Oppenheimer wrote in a note.
“We see correction risks as high given current valuations, but expect this to present a buying opportunity with relatively low risk of a more protracted and deep bear market,” Oppenheimer said.
Global stocks have endured a turbulent start to the year, first as panic over the disruptive impact of AI on business models triggered selloffs in a number of sectors and then as war erupted in the Middle East. Even so, at the index level, the strategists noted that markets have remained broadly stable until recently, with trading marked by rapid rotation and volatility in sectors and individual stocks.
A broadening out of equity returns across geographies and investing factors has led to higher-than-average valuations, with all global sectors expensive relative to their 20-year histories, the Goldman team said. Coupled with an unusually strong equity bull market led by the US, this makes equities more vulnerable to potential shocks, such as the threat to oil and gas markets from the Iran war.
“The longer this uncertainty persists, or the worse it gets for energy supplies, the higher the perceived risk to growth and inflation will be,” Oppenheimer said. Still, he noted that “most geopolitical shocks in recent years have not had a long-lasting impact on markets.”
Separately, Goldman Chairman David Solomon said at an event in Australia that he’s been surprised by the “benign” reaction in financial markets to the Middle East conflict, adding that it will take weeks to understand more about the situation. “It’s very hard to speculate because there is so much that is unknown at this point,” he said.
By Rose Henderson
