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Goldman Sachs strategists noted a slowdown in bullish sentiment after the U.S. Core PCE price inflation re-accelerated to 0.57% month-over-month while UoM consumer sentiment also increased.
As a result, global stocks fell last week as investors were re-pricing increased Fed forecasts tightening. The strategists see more opportunities in non-U.S. equities despite the fact that the STOXX Europe 600 outperformed the S&P 500 by 13% over the past 4 months.
“We are more neutral in our asset allocation (N Equities and Credit, UW Bonds, OW Cash and Commodities) helped by better macro momentum but see potential for setbacks after the strong ‘risk-on’ rally YTD,” the strategists wrote in a client note.
“We see upside to non-US equities and we like selective call switches – selling 3-month calls on the S&P 500 to buy calls on Japan and Europe indices looks attractive.”
In particular, Goldman Sachs expects the calls for corporate governance reforms will drive Japanese equities higher while European stocks are expected to continue outperforming their U.S. counterparts.
The investment banking giant projects the S&P 500 at 4000 for the most part of 2023. On the other hand, Goldman sees 12-month returns for STOXX Europe 600 and Japan’s TOPIX at 7.3% and 11.4%, respectively.
