Goldman’s 10 Reasons That the Bull Market Will Resume

The stock market slammed investors for the third trading day in a row Tuesday. Never fear, however. Goldman Sachs believes this is just a hiccup and that the bull market will resume its ascent.

Sure, the S&P 500 fell 2.8% yesterday and the Nasdaq Composite lost 4.1%. But the futures contracts for today are upbeat, indicating a 0.48% S&P rise with a 1.3% gain for the Nasdaq, the tech-heavy index.

To Peter Oppenheimer, Goldman’s chief global equity strategist, this downdraft is a merely a correction, the product of slowing momentum in the economic recovery lately. In a research note, he argued that the bull should resume its progress, albeit at a slower pace.

There are 10 reasons that the rally will get going again, after this interlude, by Oppenheimer’s thinking:

For more stories like this, sign up for the CIO Alert newsletter. 

Market Cycle. From its trough March 23 to its peak last Wednesday, the S&P 500 jumped 60%. This is the “hope” phase of a market rebound, where optimism runs the highest and the returns are the strongest. Next comes the “growth” stage, where valuations are more muted and so is the market acceleration.

Virus Vaccines’ Promise. News on their prospects is more encouraging. Goldman expects one to win regulatory approval this fall, with distribution in 2021’s first quarter.

Better Earnings Sentiment. Forecasts are for negative corporate profits for the balance of the year, but upward revisions of analysts’ estimates could give the market heart.

Low Bear Market Indicator. Goldman crunches a bunch of numbers—ranging from the yield curve to inflation to unemployment—to arrive at this figure, which it says portends high single digits for the next five years.

Washington Commitment. The Federal Reserve’s low rates and asset buying, plus a new stimulus package likely from Congress, means that “tail risk” in minimal. That is, odds are small that the economy will be allowed to tumble into the abyss.

Equity Risk Premium. This metric measures the excess return stocks need over safe Treasuries to make the risk of investing in shares worthwhile. It has been elevated for months, partly due to very low interest rates. With policymakers ensuring the economy won’t tank more, Goldman reasons, the premium should narrow, and stock investors will feel safer.

Negative Real Interest Rates. With rates so tiny, adjusting them for inflation means that fixed-income investors on the short end of the yield curve are losing money. That provides an inducement to invest money into risky assets, i.e., stocks.

Stocks as an Inflation Hedge. While no one anticipates any appreciable inflation in the immediate future, an uptick in the Consumer Price Index (CPI) would demonstrate that stocks tend to fare the best (compared with other asset classes) amid modestly rising prices.

Stocks Pay More Than Debt. Although stock dividends have fallen, it’s not as much as interest rates have dropped. “Consider,” Oppenheimer wrote, “that 60% of US companies and 80% of European companies have dividend yields above the average corporate bond yield.”

The Digital Revolution. The coronavirus has sped up existing trends, the report stated, which has driven a boom for the tech stocks. The tech names may be punished at the moment—and let’s face it, some are way overvalued—but still, “this sector is likely to remain dominant for some time to come,” the note contended.

Oppenheimer, certainly, realizes that nasty surprises can lurk even in the seemingly most benign times. His report pointed to how the low rates following the 2000-03 dot-com bust led to the excesses of the housing bubble, which detonated in 2008. Can’t have everything, huh?

Bad Breadth: 5 Giants’ Market Dominance Is a Grim Sign, Goldman Says

Economy Faces a ‘Bumpy Ride,’ Says Goldman’s Chief

Tags: dividends, Earnings, Federal Reserve, Goldman Sachs, Inflation, Peter Oppenheimer, real interest rates, Stock Market, tech stocks, vaccines

The New York State and Local Retirement System (NYSLRS) has increased employer contribution rates for the Employees’ Retirement System (ERS) for fiscal year 2021-22 to 16.2% from 14.6% of payroll, and for the Police and Fire Retirement System (PFRS) to 28.3% of payroll from 24.4%.

The new rates represent increases of 11% and 16%, respectively, for the ERS and PFRS. There are more than 3,000 participating employers in ERS and PFRS, and more than 300 different retirement plan combinations.

“Employer contribution rates have gone down or remained relatively flat for several years, but demographic changes, such as longer life spans, and market volatility are nudging up rates,” New York State Comptroller Thomas DiNapoli said in a statement. “Keeping the plan well-funded has helped improve New York’s credit rating and avoided the budget problems faced by states with poorly funded pensions.”

The funded ratio of the state pension fund is currently 86.2%, DiNapoli said.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

NYSLRS’ actuary made the recommendation for the increase, which was based on investment performance and actuarial assumptions. The recommendations were reviewed by the independent Actuarial Advisory Committee and approved by DiNapoli.

According to the NYSLRS, the actuary found that retirees and beneficiaries are living longer and members are retiring at a higher rate than previously projected. The main factors contributing to the increase were the demographic factors combined with slightly lower-than-expected investment results over the past five years. The actuary warned that assumptions and rates could be impacted in the future because of economic turmoil and “extraordinary uncertainty” in 2020.

Although the assumed rate of return stayed unchanged at 6.8% after being lowered from 7% last year, it may be lowered again next year as the system’s actuary recommended that it be reviewed in 2021. In 2010, DiNapoli decreased the assumed rate of return to 7.5% from 8%, and then lowered it again in 2015 to 7%. According to the National Association of State Retirement Administrators, the median assumed rate of return for state public pension funds as of July is 7.25%. NYSLRS is one of only 24 of 130 major public funds that currently have an investment return assumption below 7%.

Meanwhile, the New York State Common Retirement Fund (CRF) made nearly $375 million in private equity investments in July, according to the fund’s most recent monthly transaction report.

The fund made a €300 million ($354.6 million) commitment to the EQT Partners’ EQT IX, which will target buyout investments in Europe within the health care, business services, industrial technology, and technology, media, and telecom sectors. It also made a A$14 million ($10.2 million) commitment through the NYAI Co Investment Fund III to the Adamantem Capital Fund II, L.P. Adamantem was established in 2016 to make control investments in companies with an enterprise value of between A$100 million and A$300 million.

The fund also made a $10 million commitment to the Pitango Venture Capital Fund VIII, L.P. through the Hamilton Lane/NYSCRF Israel Fund, L.P. Pitango will make early stage venture investments in the technology industry.