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Market Returns: Is Goldman Sachs Right?

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Goldman Sachs

As equity markets rallied in the first quarter, Goldman Sachs (GS) rang a warning note. In February, Peter Oppenheimer, the chief global equity strategist at Goldman Sachs, said, “It’s worth noting that we expect pretty weak profit growth across all major regions this year.” He also said, “That’s where we get this idea of a sort of skinny and flat market, relatively low returns in a reasonably narrow trading range.”

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More returns ahead?

However, after the markets wrapped up their best first quarter in two decades, some observers see more returns ahead. According to CNBC, quoting Luke Tilley, the chief economist at Wilmington Trust, “If our base line view of improving economic data and also of some trade deal plays out, along with some better growth out of China, we do expect that to be a help to the equity markets in the second quarter but not at the rate of the first quarter.”

Julian Emanuel, the head of equities and derivatives at BTIG, also sounded bullish. He said, “All the work that we have ever done on this kind of [stock market] turnaround tells you that there’s a very strong probability that stocks are going to go higher looking out towards year end.”

What to watch

The US-China trade talks, Brexit negotiations, and China’s economic data could impact the markets in the second quarter. The markets seem to be pricing in a bottom in China’s economy. Chinese stocks like Alibaba (BABA) and JD.com (JD) are trading with strong double-digit year-to-date gains. Stocks including NVIDIA (NVDA), Advanced Micro Devices (AMD), Apple (AAPL), and Broadcom (AVGO) have also risen amid expectations that the Chinese economy (FXI) could be close to bottoming out.

While there’s optimism about the US-China trade talks, it isn’t a done deal due to the radical changes the US (SPY) is seeking from China and President Trump’s tough approach.

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