10 reasons the bull market has further to run, according to Goldman Sachs

Published Tue, Sep 8 20207:30 AM EDT

Key Points

Global stocks have been roiled in recent sessions by a sudden plunge in the dominant U.S. tech sector, which has driven the broad equity market recovery seen over the past five months.
In a research note Tuesday, Goldman's Chief Global Equity Strategist Peter Oppenheimer said that although a near-term setback was likely, there were 10 reasons why the rally has further to run.

Although global markets have been pulling back after a remarkable recovery run since March's coronavirus-induced plunge, Goldman Sachs insists the bull market is not over yet. Global stocks have been roiled in recent sessions by a sudden plunge in the dominant U.S. tech sector , which has driven the broad equity market recovery seen over the past five months. In a research note Tuesday, Goldman's Chief Global Equity Strategist Peter Oppenheimer said that although a near-term setback was likely, there were 10 reasons why the rally has further to run. Firstly, Oppenheimer suggested that far from the feared bear market rally, we are in the ﬁrst phase of a new investment cycle which typically follows a deep recession. "The 'Hope' phase – the ﬁrst part of a new cycle, which usually begins in a recession as investors start to anticipate a recovery, is typically the strongest part of the cycle," he said, adding that this is what we've been seeing in recent months. Oppenheimer suggested that progress on various vaccine options means the economic recovery looks more durable. Goldman economists have already made upward revisions to growth forecasts, and he said analyst expectations will likely follow. Meanwhile, the Wall Street bank's bear market indicator, which was at "very elevated" levels in 2019, is now pointing to a relatively low risk despite heightened valuations. A further factor supporting the long-term outlook is the unprecedented levels of policy support for risk assets necessitated by the Covid-19 crisis. "There is both a central bank 'put' – a belief that central banks will be there to provide as much liquidity as is required – and a ﬁscal 'put' as governments have scaled up their willingness to support growth," Oppenheimer said. What's more, the equity risk premium, the extra return made when investing into equities over a risk-free option, has room to fall, he suggested, which will be supportive as we enter a long economic cycle of moderate growth, inﬂation and interest rates. "The resumption of zero nominal interest rate policy in the recent past, together with the extended forward guidance, has created an environment of greater negative real interest rates," Oppenheimer highlighted, adding that this would be "highly supportive" to risk assets in a recovery. A further supportive factor he flagged is that equities offer a reasonable hedge to higher inflation expectations, though significant rises in inflation are not likely in the near- or medium-term. "Equities look cheap relative to corporate debt, particularly for strong balance sheet companies (60% of US companies and 80% of European companies have dividend yields above the average corporate bond yield)," Oppenheimer highlighted. Finally, he suggested that as the "digital revolution" expands, stocks that stand to benefit from increased digitization will continue to drive bull market sentiment. "We think this transformation of the economy and stock markets has further to go. These companies could continue to drive valuations and returns in this bull market," he concluded.

Financial professionals sit in the Goldman Sachs booth on the floor of the New York Stock Exchange.

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Although global markets have been pulling back after a remarkable recovery run since March's coronavirus-induced plunge, Goldman Sachs insists the bull market is not over yet.

Global stocks have been roiled in recent sessions by a sudden plunge in the dominant U.S. tech sector, which has driven the broad equity market recovery seen over the past five months.

In a research note Tuesday, Goldman's Chief Global Equity Strategist Peter Oppenheimer said that although a near-term setback was likely, there were 10 reasons why the rally has further to run.