GOLDMAN SACHS: 2 big reasons the stock market is safe from a correction


nyse trader
Goldman
Sachs says stock traders have little to fear — for
now.


Spencer
Platt/Getty Images



Clients of Goldman Sachs can’t stop asking about the possibility
of a major stock market downturn.

And can you really blame them for worrying? After all, it’s been
14 months since the SP
500
has seen a 5% sell-off and 19 months since a full-blown
10% correction.

Still, Goldman says fear not, for a couple of key factors are
still working in favor of a prolonged stock market expansion.

The first is a lack of investor euphoria — the type of unabashed
confidence that has historically left bull markets vulnerable to
sharp downturns. Goldman cites cash positions of 3.2% for mutual
funds, which is in line with the historical average. If there
were an overabundance of confidence, this measure would be far
lower, with more capital in play.

“Investors today are situated between skepticism and optimism,” a
group of Goldman strategists led by David Kostin wrote in a
client note. “Few are euphoric as 27% of core managers are
beating their benchmark. ‘Tormented bulls’ best describes
investor mentality.”

A second factor that should keep the stock market afloat is
persistent US economic expansion, Goldman says. The firm
specifically cites strong monthly job growth, rising wages,
confidence at its highest level since 2001, and household balance
sheets that are their strongest since 1980.


Screen Shot 2017 09 11 at 8.34.07 AM
Household
balance sheets are their strongest since 1980, one of several
factors supporting a continued stock market
rally.

Goldman
Sachs


Further, both sales and earnings growth for US corporations are
headed for more growth in 2018, while companies clearly don’t
view their shares as overvalued, as indicated by their continued
willingness to repurchase shares, Goldman says.

Overall, the firm argues that investors would be wise to keep
these positive drivers in mind as they watch the stock bull
market continue into its ninth year. Instead of worrying about
the rally dying of old age, traders should be focused on actual
fundamental drivers.

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