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Goldman Sachs: Lower Expectations from Markets

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Goldman Sachs

As we noted previously, US equity markets had the best January in 30 years. In December, markets fell sharply—the worst December since the Great Depression. The recipe was set for bears in December. Lower 2019 global growth, the corporate earnings growth cliff, and the US-China trade war—nothing seemed to work in markets’ favor.

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January was strong

So far, markets have defied bears in 2019. After a strong January, Goldman Sachs (GS) was cautious. Sharon Bell, a Goldman Sachs analyst, wrote a note to clients. She wrote, “The rally we expected has happened swiftly, and given this we see relatively modest returns on equities from here.” Even as CNBC reported the news, it didn’t have much of an impact on markets on February 5. Bulls still appear to be in charge.

The S&P 500 (SPY) rose 0.47% on February 5, while the NASDAQ (QQQ) saw an upwards price action of 0.74%. Apple (AAPL), Microsoft (MSFT), Qualcomm (QCOM), Amazon (AMZN), Netflix (NFLX), Facebook (FB), and Alphabet (GOOG) closed with gains. However, Advanced Micro Devices (AMD) and Micron (MU) closed with losses. Alibaba (BABA), Baidu (BIDU), and Tencent (TCEHY) also closed with gains.

Front-loaded gains

While markets might have front-loaded their 2019 gains, the scenario might not be as bleak as some observers are forecasting. The January price action should be seen in the context of the December sell-off. Markets got too pessimistic in December. Markets are repricing themselves since earnings have been decent.

Three looming deadlines could impact markets in the short term, which we’ll discuss in the next part.

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