According to Wall Street giant Goldman Sachs, those online stock trading should prepare themselves for the likelihood of a significant correction in equities markets at some point over the coming months. While the investment bank puts the likelihood of a correction as ‘high probability’, the good news is that Goldman Sachs’ analysts don’t believe that it will prove to be prolonged. So, rather than be seen as a potential panic moment and consider selling off, those investing with online stock brokers can use any correction to ‘buy on the dip’ and take advantage of a subsequent bounce-back.
Goldman Sachs’ has a pretty good record when it comes to anticipating market movements and the bank’s advice is valued by investors internationally. Bank of England governor Mark Carney had a career as a senior figure with the bank. However, Goldman is not the only big Wall Street investment bank to warn a downturn is on the cards. Last week peer Bank of America Merrill Lynch also said it considered the chances of a sharp correction taking hold in coming weeks as ‘very likely’. While GS was a little more circumspect on the timing, stating a window of months, Merrill Lynch appear to be confident a drop will become a reality sooner rather than later.
Analysts have been predicting a correction since last year, with equities, particularly in the US, having been on a strong bull run since early 2016. In fact, equities have been on a bull run since 2009, though there was a pause of just over a year between 2015 and early 2016. The almost constant upwards trajectory for equities since the international financial crisis does have to run out of steam at some point and last year’s gains were particularly strong.
There are also plenty of analysts who believe the current bull market may still have some time to go, citing corporate tax reform in the US, growing revenues and a strong world economy. That ties in with the Goldman Sachs forecast. Peter Oppenheimer, the bank’s chief global equity strategist commented in yesterday’s note:
“there are good reasons to be bullish. Global growth is running above 5 per cent, the strongest pace since 2010. After several years of weak and imbalanced global growth, we are now seeing a broad and synchronised economic recovery. Alongside positive GDP surprises, earnings expectations that had consistently been revised down are now finally being revised up sharply.”
But in the shorter term Oppenheimer believes investor optimism, ignorance of political risks and expensive valuations add up to correction signals currently “flashing”. While he believes the correction could be painful he also doesn’t believe it will develop into a long term bear market so should be considered as a buying opportunity.
Experienced investors often believe that the best time to buy is when news is poor and valuations low. So if a correction does come, don’t panic, log in to your online stock broker and pick up some bargains!