{"id":10758,"date":"2022-08-29T20:29:11","date_gmt":"2022-08-30T01:29:11","guid":{"rendered":"http:\/\/blog.jlbn.net\/?p=10758"},"modified":"2022-08-29T20:29:13","modified_gmt":"2022-08-30T01:29:13","slug":"this-asset-class-is-poised-to-rise-38-because-markets-overestimate-risk-of-global-recession-goldman-says","status":"publish","type":"post","link":"http:\/\/blog.jlbn.net\/?p=10758","title":{"rendered":"This asset class is poised to rise 38% because markets overestimate risk of global recession, Goldman says"},"content":{"rendered":"\n

Still reeling from Fed Chairman Jerome Powell\u2019s higher-for-longer remarks last week<\/a>, riskier asset like equities look set for another battering, on Monday.<\/p>\n\n\n\n

\u201cYou can\u2019t have the stock market collapse over 5% on the words of one man,\u201d grumbled FWDBONDS \u2018 chief economist Chris Rupkey, who sees a major credibility problem for the central bank. \u201cFed officials set the inflation fire ablaze with too much QE and now they say they know what to do now that inflation is out of control. No one believes that.\u201d<\/p>\n\n\n\n

And as we head into the\u00a0worst calendar month<\/a>\u00a0for Wall Street,\u00a0economists expect\u00a0<\/a>more hawkishness out of the Fed, and say a strong jobs report on Friday will only shore up rate-hiking resolve.<\/p>\n\n\n\n

So where are the havens? Dividend stocks<\/a>, the front end of credit markets and Latin American currencies and bonds<\/a> are just some of the suggestions floating around.<\/p>\n\n\n\n

Our call of the day <\/strong>from Goldman Sachs offers another. They see a buying opportunity via a recent soft patch in commodities and reduce risk elsewhere. They see equities threatened by sticky inflation and a potentially hawkish Fed surprise.<\/p>\n\n\n\n

Commodities are \u201cthe best asset class to own during a late-cycle phase where demand remains above supply. Physical fundamentals signal some of the tightest markets in decades,\u201d said a team led by senior commodities strategist Sabine Schel in a new note.<\/p>\n\n\n\n

\"\"\/
Goldman Sachs<\/figcaption><\/figure>\n\n\n\n

The recent pullback in agricultural and industrial commodities was due to a global recession being priced in by traders. Recession fears have had more of an impact on commodities than on any other asset class, Goldman said. However, the bank believes a recession will be mostly confined to Europe, with the U.S. and China avoiding one.<\/p>\n\n\n\n

\"\"\/<\/figure>\n\n\n\n

It\u2019s a matter of just not enough commodities to go around, they say.<\/p>\n\n\n\n

\u201cAs further inventory falls trigger depletion risks, commodity returns for investors are likely to strengthen. Put differently, with the risk of inventory exhaustion significantly greater than the risk of an imminent global economic recession in our view, we believe commodity index backwardation should steepen,\u201d said Schels.<\/p>\n\n\n\n

Backwardation refers to futures prices tied to a given commodity trading higher than the current spot price.<\/p>\n\n\n\n

In keeping with this view, Goldman has raised its forecasts for the S&P GSCI commodity index on a 12-month basis to 38.8%. The bank also sees 12-month returns of 51.7% for the energy sector.<\/p>\n\n\n\n

\"\"\/<\/figure>\n\n\n\n

Goldman says drivers for this commodity run will be \u201cmicro in nature as further price spikes are required to bring demand back in line with supply in the absence of inventories,\u201d adding that those spikes will create \u201cextreme\u201d bouts of backwardation.<\/p>\n\n\n\n

\u201cIn 2000 or [2007-2008], for instance, the depletion of inventories shifted oil markets into a highly volatile pricing regime where extreme price spikes generated substantial backwardation. Even in the absence of significant price appreciation, this can produce exceptionally high returns for investors,\u201d said Goldman.<\/p>\n\n\n\n

And while backwardation has been most commonly seen in energy, the Goldman team sees it spreading to base metals, notably copper, corn and soy where volatility is likely to increase.<\/p>\n\n\n\n

Specifically, despite strong year-to-date returns, they see energy and agriculture leading. \u201cWith oil the commodity of last resort in an era of severe energy shortages, we believe the pullback in the entire oil complex provides an attractive entry point for long-only investments.\u201d<\/p>\n\n\n\n

A McKinsey report\u00a0recently highlighted<\/a>\u00a0a worsening situation for global food supply in 2023, owing to war in one of the world\u2019s breadbasket \u2014 Ukraine \u2014 and climate change. The USDA\u2019s recent corn report downgraded next year\u2019s yield.<\/p>\n\n\n\n

The markets<\/h3>\n\n\n\n

Stocks DJIA<\/a> <\/strong><\/a>SPX<\/a> <\/strong>COMP<\/a> <\/strong>are under pressure<\/a>, the 2-year Treasury yield TY00<\/a> <\/strong>TMUBMUSD02Y<\/a> <\/strong>is at a level not seen since 2007, the dollar DXY<\/a> <\/strong>is climbing and gold GC00<\/a> <\/strong>is down. Oil CL.1<\/a> <\/strong>is pushing higher. Asian NIK<\/a> <\/strong>and Europe stocks SXXP<\/a> <\/strong>pretty much followed Wall Street\u2019s lead and bitcoinBTCUSD<\/a> <\/strong>dropped under $20,000<\/a>.<\/p>\n\n\n\n

The buzz<\/h3>\n\n\n\n

After Powell\u2019s market-shattering remarks, expect lots of focus on data. Monday is quiet, but the rest of the week will bring consumer confidence, the latest Institute for Supply Management index, and most important payrolls data on Friday. New York Fed President John Williams is among a handful of Fed speakers expected this week.<\/p>\n\n\n\n

Tesla TSLA<\/a> <\/strong>CEO Elon Musk said he\u2019s aiming to have self-driving technology<\/a> ready by year-end, with wide release in the U.S. and Europe depending on regulators.<\/p>\n\n\n\n

Pinduoduo PDD<\/a> <\/strong>is soaring after the China based agricultural company that connects consumers to producers reported surging revenue and profit<\/a>.<\/p>\n\n\n\n

Crypto stocks like Coinbase COIN<\/a> <\/strong>, Microstrategy MSTR<\/a> <\/strong>and Signature Bank SBNY<\/a> <\/strong>are tracking weak cryptocurrency prices<\/a>.<\/p>\n\n\n\n

Best of the web<\/strong><\/h3>\n\n\n\n

The chart<\/h3>\n\n\n\n

After the S&P 500 failed late last week at 4,200, which has seen the most volume in the last two years, all eyes are on 3,900, Jonathan Krinksy, chief market strategist at BTIG, tells clients.<\/p>\n\n\n\n

\u201cWhile we remain cautious near-term, we think the June lows will hold as weakness under 4,000 should see sentiment and positioning get bearish enough to create a decent entry point heading into the fourth quarter,\u201d he said. But if that breaks, they will be tearing up the playbook a bit, he says.<\/p>\n\n\n\n

\"\"\/
BTIG<\/figcaption><\/figure>\n\n\n\n

The tickers<\/h3>\n\n\n\n

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern Time:<\/p>\n\n\n\n

Ticker<\/td>Security name<\/td><\/tr>
TSLA<\/a><\/strong><\/td>Tesla<\/td><\/tr>
BBBY<\/a><\/strong><\/td>Bed Bath & Beyond<\/td><\/tr>
AMC<\/a><\/strong><\/td>AMC Entertainment<\/td><\/tr>
GME<\/a><\/strong><\/td>GameStop<\/td><\/tr>
APE<\/a><\/strong><\/td>AMC Entertainment preferred shares<\/td><\/tr>
AAPL<\/a><\/strong><\/td>Apple<\/td><\/tr>
NIO<\/a><\/strong><\/td>NIO<\/td><\/tr>
NVDA<\/a><\/strong><\/td>Nvidia<\/td><\/tr>
AMZN<\/a><\/strong><\/td>Amazon<\/td><\/tr>
BABA<\/a><\/strong><\/td>Alibaba<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Random reads<\/h3>\n\n\n\n

Activists mourn \u2018man in the hole,\u2019 the last of his Brazilian Amazonian tribe<\/a><\/p>\n\n\n\n

NASA\u2019s new moon rocket mission gets scrapped due to fuel leaks<\/a><\/p>\n\n\n\n

A\u00a0$12.6 million<\/a>\u00a0baseball card<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Still reeling from Fed Chairman Jerome Powell\u2019s higher-for-longer remarks last week, riskier asset like equities look set for another battering, on<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[254,3421],"tags":[3705,888],"_links":{"self":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10758"}],"collection":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10758"}],"version-history":[{"count":2,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10758\/revisions"}],"predecessor-version":[{"id":10760,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10758\/revisions\/10760"}],"wp:attachment":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10758"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10758"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10758"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}