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Goldman believes that any rally in the S&P 500, and stocks in general, may be modest and short-lived due to persistent geopolitical risks that are fueling concerns about economic growth.
“Analysts see increasing divergence across the measures they track. Surveys and some fast money positioning have shifted in a bearish direction, with options positioning the most bearish,” the strategists wrote in a report.
It’s worth noting that fund flows are also giving mixed signals while inflows into “safe” bonds remain robust, which indicates a growing wariness among investors.
Inflows into “safe” bonds remain robust, suggesting ongoing investor caution. However, equity flows have not yet displayed a significant turn towards a bearish sentiment.
“Renewed geopolitical risk could initially support sentiment by bringing some relief on rates and rekindling investor optimism around more accommodative policy, but a prolonged period of geopolitical uncertainty coupled with a still inflationary macro environment is likely to eventually trigger growth concerns.”
“Analysts think risky asset positioning, particularly equity, may have further room to re-set into year-end. This, in turn, might mean any relief rally could be smaller and short-lived,” the strategists concluded.
