Sanguine stock investors are at risk of being caught out by a spike in volatility during the rest of 2023 as concerns about a recession intensify, Goldman Sachs Group Inc. strategists say.
(Bloomberg) — Sanguine stock investors are at risk of being caught out by a spike in volatility during the rest of 2023 as concerns about a recession intensify, Goldman Sachs Group Inc. strategists say.
After resilient growth and cooling inflation helped contain swings in equity prices so far this year, recent market stress and volatility across assets, coupled with weaker economic data, have increased the potential for bigger moves in the second quarter, the team led by Christian Mueller-Glissmann wrote in a note.
The strategists said a Goldman model assessing a combination of macro-economic factors, market indicators and broader uncertainties signals a 54% chance of high volatility for the S&P 500, against a 39% chance that moves will be milder. Mueller-Glissmann in February said he preferred non-US assets over American equities, correctly forecasting a period of underperformance in the S&P 500.
While bond-market volatility has spiked this year as investors priced in the impact of an economic contraction, equities have remained relatively calm amid bets that slowing growth could lead the Federal Reserve to cut interest rates. But for the remainder of 2023, “with both growth and inflation expected to decline, volatility across assets is likely to be driven more by growth rather than inflation volatility,” Mueller-Glissmann said.
In such an environment, the strategists prefer equity derivatives such as shorter-dated put spreads, S&P 500 longer-dated collars and long forward vol strategies as a method of hedging against stock declines.
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