Market Crash ? soft economic data has some concerned including Goldman Sachs
Investors appear increasingly concerned about S&P 500 drawdown according to a new research report from Goldman Sachs. The report highlights the recent S&P 500 rally, which has taken place since the presidential election results were known at the beginning of November. The 10% rise in the S&P 500 Index since the election was catalyzed by a surge in optimism surrounding US policy and even though policy changes have not emerged, so-called ‘soft’ economic data has continued to show strength. The fact that soft economic data remains robust Goldman claims has propped up investor optimism despite the lack of action.
The 10% rise in the S&P 500 Index since the election was catalyzed by a surge in optimism surrounding US policy and even though policy changes have not emerged, so-called ‘soft’ economic data has continued to show strength. The fact that soft economic data remains robust Goldman claims, has propped up investor optimism despite the lack of action.
Goldman Sachs – Investors Are Increasingly Concerned About A Market Crash
However, the lack of action has left the S&P 500 hovering just under 2400, as investors wonder whether economic activity can catch up to sentiment and support another leg higher in asset prices. Opinions on whether or not to Trump will actually make good on his promises remain split, but Goldman points out that, “as investors continue to wait for the global economy to ‘show me the activity,’ they have become increasingly nervous about the prospect of a large, sharp S&P drawdown.
For evidence of S&P jitters you need look no further than the VIX, which remained around 12 for much of the first quarter, although it has now ticked higher to 15 as volatile returns.
And if the S&P 500 gives up its post-election gains, emerging markets may “catch a cold” Goldman speculates. The ongoing improvement in macro fundamentals has contributed “to a surprising resilience of emerging market assets to a wide range of external shocks in recent months, including fluctuations in US policy perceptions, developed market interest rates and commodity prices.” Unfortunately, if the S&P 500 were to give up post-election gains, these external shocks may quickly be reflected in emerging markets:
“If the market is forced to wait much longer for a follow-through in activity data, and the VIX continues to rise, EM investors should not be complacent: despite improving macro fundamentals, an S&P drawdown when the VIX index has reached high levels would likely be painful, especially given that investors have continued to build EM positioning.”