Written by Sinad Karahimetovic
Christian Muller Gelsmann, chief European equity portfolio analyst at Goldman Sachs, downgraded the stock to Underweight over the next three months. The move comes a few days after the company’s US strategists lowered their year-end target to 3600, while a hard landing scenario calls for a drop to 3400.
Goldman strategist thinks stocks will underperform in the final phase of the hiking cycle, which is defined as 3-6 months before peak US yields.
“Real yields are still rising and tend to peak only when the Fed stops rising, which is likely to take longer as inflation rises and holds steady,” Mueller-Glesman told clients in a note.
Higher real yields are the biggest driver behind the bank’s desire to be more tactical. Mueller-Glesman argues that current levels of equity valuation “may not fully reflect the relevant risks and may have to fall further to reach a market low”.
“Since the GFC, TINA (there is no alternative) has been a major support for equities – with real returns materially lower, equities have been more attractive against fixed income, with relatively higher equity risk premiums (ERP). Investors now face TARA (there are reasonable alternatives) as Bonds look more attractive.”
Conversely, Goldman reaffirmed its over-cash rating for 3 and 12 months.