Analysts from the Wall Street bank Goldman Sachs have downgraded their prediction for US and European stocks for the next three months. They expect a reversal of investor positioning and say further growth requires a better economic environment.
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(L-R) The Hong Kong Exchanges flag, Chinese national flag and Hong Kong flag are hoisted outside the Hong Kong Stocks Exchange in Hong Kong. © Bobby YipBrexit fears & grim US data push Asian shares to 1-yr high
Goldman expects the S&P 500 and the STOXX Europe 600 to contract about 10 percent over the period.
"Given equities remain expensive and earnings growth is poor, in our view equities are now just at the upper end of their 'fat and flat' range," said the analysts.
The downgrade follows a recent rally in risk assets, driven by both light positioning into the Brexit vote and a search for yield, according to the bank.
“Our risk appetite indicator is near neutral levels and its positive momentum has faded, suggesting positioning will give less support and we will need better macro fundamentals or stimulus to keep the risk rally going. But market expectations are already dovish, and growth pick-up should take time,” they added.
Goldman Sachs is downgrading stocks to 'underweight' for the next three months, but keeping a 'neutral' position in the next year, staying 'overweight' in cash.
On Friday, the S&P 500 touched an all-time high of 2,177.09. This happens at a time, when the US economy grew 1.2 percent in the first half of the year, well below the predicted 2.5-2.6 percent growth.