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Goldman Sachs Upgrades Global Equities
Goldman Sachs bets on high earnings growth while BofA warns of election-driven volatility.
In brief
Goldman Sachs bets on high earnings growth while BofA warns of election-driven volatility. Goldman Sachs upgraded global equities to overweight citing strong earnings prospects, while BofA Securities maintained a sell signal amid record cash flows and US midterm election risks. Originally reported by BigGo Finance.
Goldman Sachs Upgrades Global Equities
Goldman Sachs upgraded its three-month global equities rating from neutral to overweight citing solid corporate earnings prospects and improved risk-reward after recent valuation pullback.
BofA Securities Maintains Sell Signal
BofA Securities kept its sell signal with strategist Michael Hartnett pointing to record $166.4 billion weekly net inflow into global money market funds as evidence investors are hoarding cash.
Earnings Growth Threshold
Goldman Sachs believes S&P 500 third-quarter earnings must clear 25% to 29.5% growth to justify its upgrade, with the difference determining the substance of its claim.
AI Giants Drive Earnings Growth
Nvidia and Micron alone account for over one-third of S&P 500 third-quarter EPS growth, with AI infrastructure companies contributing more than half of the quarter's EPS growth.
Bond Rating Upgrade
Goldman upgraded its 12-month bond rating to overweight, recommending bonds as a hedge against interest rate and energy price risks.
Earnings Quality Concerns
Tech-sector third-quarter earnings are expected to grow 65% with a portion coming from investment gains on holdings like SpaceX and OpenAI, which could reverse if the AI boom decelerates.
Valuation Spread Analysis
The S&P 500's forward earnings yield is 4.33% against a 10-year Treasury yield of 5.24%, creating a negative 91 basis point spread, the 11th percentile since 1990.
Barbell Strategy
Goldman recommends a barbell strategy: global tech stocks on one end and rate-sensitive, bond-like equities on the other with overweight positions in Asia and the US.
US Midterm Elections Impact
BofA Securities identifies November 3 US midterm elections as the biggest potential catalyst for a 10% swing in global equities before year-end.
Record Cash Flows
Global money market funds saw net inflows of $166.4 billion for the week, the largest single-week inflow since April 2020, pushing assets from $5 trillion to $8 trillion.
Earnings Bar Significance
The 4.5-percentage-point gap between 25% and 29.5% growth matters: which threshold Goldman means to beat directly determines the substance of its claim.
Hedge Fund Positioning
Hedge fund exposure to US tech 'Magnificent 7' has climbed from 14% in June to 22%, a record high, yet overall net long positioning on US equities remains near its lowest level.
AI Power Infrastructure
Goldman is bullish on AI-related power infrastructure, calling electricity the most underappreciated AI bottleneck with positioning near a two-year low.
Earnings Season Test
Both Goldman and BofA are waiting on the same batch of S&P 500 third-quarter earnings results to determine if the market rally can hold into year-end.
The takeaway
Goldman Sachs upgraded global equities to overweight citing strong earnings prospects, while BofA Securities maintained a sell signal amid record cash flows and US midterm election risks.
