Now Goldman Is Bullish
Two weeks ago, on March 31, I sent you an email with the subject:
“Goldman is bearish, so what?”
The Kelly Letter had just followed its quarter guidance—enormous buy signals across the board—and some subscribers were worried that it had done so right into the maw of a crash foretold by none other than Goldman Sachs. (GS)
The firm said that investors could not be confident that a new bull market had begun until the virus spread in the United States began tapering, stimulus measures were working, and Goldman’s US Equity Sentiment Indicator bottomed out.
I wrote that bulls could counter all three:
- On a semi-log plot, worldwide cases of the virus are already leveling out. We’re not out of the woods yet, but we can envision getting there—and the stock recovery will beat us out of the woods.
- Anybody waiting for confirmation that bankruptcies will be avoided is going to miss the recovery. How many bankruptcies are fine by Goldman? Surely more than zero, so when does the green light for bankruptcy avoidance go on? Probably about the time the S&P 500 reaches the firm’s 3000 target level.
- Maybe Goldman’s sentiment indicator has not bottomed (Although, how can they know?), but others have shown grim sentiment. CNN’s Fear & Greed Index already reached the extreme fear levels it bottomed at in the fourth-quarter 2018 crash. The CBOE Volatility Index (VIX) reached the same panic zone it reached in the subprime mortgage crash.
Yesterday, Goldman flipped bullish.
The same team of z-val strategists lead by chief coin tosser David Kostin wrote in a note to clients that the worst of the crash is behind us.
The team admitted that its “previous near-term downside of 2000 [for the S&P 500] is no longer likely. Our year-end S&P 500 target remains 3000 (+8%).”
Here’s why:
“The combination of unprecedented policy support and a flattening viral curve have dramatically reduced downside risk for the US economy and financial markets and lifted the S&P 500 out of bear market territory. …
“If the US does not experience a second surge in infections after the economy reopens, the ‘do whatever it takes’ stance of policy makers means the equity market is unlikely to make new lows.”
Then—and this will sound familiar—the firm pointed out that bear markets usually end before economic bad news reaches its worst.
The same David Kostin crew sent a note to clients on March 20 (one trading session ahead of the bottom):
“We now forecast S&P 500 EPS of $110 in 2020, a decline of 33% from 2019. … We have cut our 2020 earnings forecast three times in 30 days (-37% in total) as the magnitude of the economic slowdown has become increasingly apparent. …
“The stock market is a leading indicator of business trends, and corporate activity continues to deteriorate with no signs yet of a bottom. The first quarter has not even ended and companies have yet to release 1Q results but equities have already collapsed by 32% in one month. The speed of business erosion is unprecedented. …
“In the near-term, we expect the S&P 500 will fall towards a low of 2000.”
From that day’s close through yesterday’s, here’s how SPY and our ETFs have performed:
+20% SPY
Thanks for the warning, Dave & Co.
To become a Goldman Sachs Private Wealth client, you must invest at least $10M. The firm will charge 1.15% to manage it, which comes out to $115,000 at the entry level for the firm’s trademarked coin-toss accuracy.
You can learn more about the way I use leveraged ETFs in The Kelly Letter at jasonkelly.com