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The coronavirus pandemic, which appears to be seeing a resurgence, is causing more market turbulence with the S&P 500 about to snap a two-month winning streak. Goldman Sachs is warning clients of more wild swings ahead and giving them a strategy to do something about it.
"High volatility and low risk-adjusted returns likely to linger, complicating the outlook for performance," David Kostin, Goldman's chief U.S. equity strategist, said in a note. "Consensus expects 9% upside to the typical stock over the next 12 months and volatility should remain elevated through the rest of the year, suggesting low risk-adjusted returns in the coming months."
The bank believes investors should look at stocks with a high level of Sharpe ratio, which Kostin said will deliver the best risk-adjusted returns going forward.
The so-called Sharpe ratio is a measure of a stock's performance relative to its volatility. Goldman uses consensus price targets and options six-month implied volatility to measure Sharpe ratios.