Credit markets are likely to face heightened short-term volatility, while oil prices will revisit recent lows in the second half of the year, according to Goldman Sachs, which advised clients to cut exposure to both assets.
Amid heightened volatility in fixed income markets, with government bonds on both sides of the Atlantic selling off sharply, causing yields to spike, Goldman analysts advised clients to take a neutral position on corporate bond markets and to steer clear of commodities for the year ahead.
The investment bank downgraded its outlook on credit to "neutral" on a three-month basis, forecasting that the difference between government bond yields and corporate debt would narrow, meaning that yields increase more gradually. On a 12-month horizon, the bank stuck with its underweight call.
Goldman also cut its outlook for commodities, advising investors to steer clear or "underweight" oil on a 12-month view.
"We still expect a decline in the oil price before it recovers, as the price is high relative to current and forecast fundamentals," analysts led by Christian Mueller-Glissmann at the bank, said in a research note on Wednesday.
"The reaction of non-OPEC (the Organization of Petroleum Exporting Countries) producers remains limited so far and low-cost producers such as Saudi Arabia, Iraq and Russia are on track to grow production sharply," he added.
Goldman Sachs said that while calling the timing on the price decline is difficult, it expected the oil price to "retrace its lows" of around $45 per barrel for WTI crude oil by October, before recovering gradually to $55 on a 12-month time horizon. By the end of next year, the bank forecasts a price of $60 per barrel.
Equities are still the preferred asset class for the investment bank, particularly in Europe and Japan, following consistent record highs seen in U.S. stock indexes this year.
Data from Bank of America Merrill Lynch published on Wednesday showed that over 200 fund managers, with a total of around $608 billion of assets under management, were bearish on the outlook for U.S. equities. Appetite for U.S. stocks tumbled this month to levels last seen in January 2008, the bank's fund manager survey revealed, with investors trimming their equity holdings to underweight as confidence in corporate profits dwindled.