After warning on the risk of a temporary sell-off in stocks back in July, Goldman Sachs upgraded its outlook on equities to "overweight" on Monday, expecting a push higher for stocks in both the near- and medium-term.
"We upgrade equities to overweight over three months...we expect earnings growth, dividends, and high risk premia to support returns," Goldman's global investment team, which includes Peter Oppenheimer and Anders Nielsen, said in a research note released on Monday morning.
Back on July 25, the investment bank downgraded equities to "neutral" for the three months ahead, citing the risk of a temporary hit to stocks following a selloff in bonds. They said the near-term risk/reward profile for stocks was less attractive, despite iterating a "strong conviction" that stocks were the best-positioned asset class over the next year.
Over the ten days following that note, the pan-European Euro Stoxx 600 Index fell 5 percent. But it is now 1 percent higher since that low. The S&P 500 slipped 3.5 percent but has managed to log a gain of 1.5 percent from that date. With indexes now upright and pointing the right way, Goldman has decided to flip its view and says the new stimulus announced last week by the European Central Bank (ECB) was the reason behind this change.
"Following the dovish ECB decisions (on Thursday), we now see the risk to equities from higher bond yields as less imminent," the bank said in the note.