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Instead of fearing bear territory, Goldman strategists led by Peter Oppenheimer said in a note that the market is in the early stages of a bull phase following an “explosive” valuations-led rebound in equities that tends to start in recession and marks the start of a new cycle.
“The market is rising on good news but choosing to largely ignore weaker data and rising infection rates,” the strategists wrote on Tuesday. “There is a risk of a correction, but without a bear market inflection.’
Global equities have surged more than 70% since a coronavirus-induced selloff in March last year, reaching a record earlier this month on bets of a vaccine-fueled economic bounce and expanding U.S. stimulus. The sharp rebound is “almost identical” to the recovery from the trough of the financial crisis in 2009, which was followed by a correction, Goldman notes.
The MSCI All-Country World Index rallied strongly from a March 2009 low, before entering a correction in May the following year. Still, circumstances are different this time around, Goldman said.
While the global financial crisis generated a “structural bear market,” the coronavirus-led recession and selloff were driven by events, according to the firm.
“The unprecedented speed and scale of policy support during the pandemic, designed to reduce the risk of longer-term scarring, has also reduced the risks of structural scarring and tail risks for investors, allowing them to ‘look through’ the downturn into a recovery,” the strategists wrote.
©2021 Bloomberg L.P.
