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Monday August 1, 2016

// August 1st, 2016 // Daily News

Goldman Sachs downgrades equities to ‘underweight’ over three months

CNBC.com

Daniel Acker | Bloomberg | Getty Images
Global equities are at the upper end of their “fat and flat range,” according to Goldman Sachs, who downgraded stocks to “underweight” on Monday as part of its 3-month asset allocation.
The bank remains “neutral” on equities over a 12-month period and continues its “overweight” position in cash. The downgrade comes after a rally in risk assets over the past few weeks driven by the U.K.’s vote to leave the European Union on June 23 and the search for yield amid expectations of easing. But Goldman suggests equities are now expensive and with weaker-than-expected earnings growth it views this as the right time to downgrade.
“Until the growth situation improves, we are not that constructive on equities, particularly after this type of rally and amid continuing concerns about the sustainability of stimulus-led growth in China, global policy uncertainty and in Europe in particular, dovish central bank expectations, and heightened prospects of unknown shocks e.g. Turkey recently,” a team of analysts at the bank, led by Christian Mueller-Glissmann, said in a note Monday.
The bank however remains “overweight” credit, which it considers has less negative asymmetry than equities.
In the note, Goldman Sachs warns that an equity drawdown at this point could be painful for multi-asset investors since the potential to diversify in “risk-off” periods might be more limited with bonds at very low yields.
“When bonds and equities rally together due to a search for yield, this can drive inflated valuations for both and increase the vulnerability to shocks, which we think has occurred,” Goldman said.
The note further explains that the rally in equity markets recently could be due to a combination of expectations of more easing from central banks and support from better macro fundamentals in the economy. “Our global macro surprise index (MAP) had an increase in July, driven by developed markets,” the note said, adding that there is a “good news is good news” environment as dovish Federal Reserve expectations have been anchored.
However, this could be due to lower expectations from markets into and after Brexit, Goldman warned.
On the Fed’s chances of increasing its interest rate, Goldman economists see a 65 percent probability of a rate hike this year – 45 percent for December and 20 percent for September – following the Fed’s recent meeting where the FOMC (Federal Open Market Committee) indicated that near-term risks to the economic outlook have diminished.
But with Brexit, investors’ expectations for incremental easing from other central banks have increased, the note said. Goldman expects the Bank of England to announce a 25-basis point cut in its bank rate, gilts and corporate purchases and an extension of the Funding for Lending scheme – which was designed to boost bank lending.
Meanwhile, on the European Central Bank, economists at Goldman Sachs expect it to announce an extension of its asset purchase program to the end of 2017 at its September meeting.
“New fiscal easing in Japan is also broadly expected in the near term but we have concerns that this fails to sustainably boost the market, as has often been the case in the past,” the note said.

Today’s Inspiration

Transformation

by Joyce Meyer – posted August 01, 2016

So that they [even] kept carrying out the sick into the streets and placing them on couches and sleeping pads, [in the hope] that as Peter passed by, at least his shadow might fall on some of them. And the people gathered also from the towns and hamlets around Jerusalem, bringing the sick and those troubled with foul spirits, and they were all cured.
– Acts 5:15–16

Peter was a man with a past. He was bold and not afraid of change, but he also had many faults. In Matthew 16:22–23, we see Peter trying to correct Jesus. In Matthew 26:31–35, we see that Peter thought more highly of himself than he should have. In Matthew 26:69–75, it is recorded that Peter denied even knowing Jesus.

Once Peter realized the depth of his sin, he wept bitterly, which showed that he had a repentant heart (v. 75). God is merciful and understands our weaknesses. In John 21, we see Jesus lovingly restore Peter. Peter had been included in God’s plans for the future even though he had a past record of foolishness and failure. Peter had denied Christ, and yet he became one of the best-known apostles. Peter could have spent his entire life feeling bad about his denial of Jesus, but he pressed past that failure and became valuable to God’s kingdom.

Lord, You are a God of transformation. Help me to press past my failures and become a valuable servant of Yours today. Thank You for including me in Your plans for the future. Amen.