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August 06, 2024 at 11:55 AM
What You Need to Know
- Returns after a 5% decline have been positive in 84% of episodes, the firm's research shows.
- But U.S. equities are still not pricing in an economic contraction, the Goldman Sachs strategy team says.
- A JPMorgan analyst believes stocks haven’t bottomed yet, and a 10% correction in the S&P 500 is likely.
Buying U.S. stocks after a slump of the scale witnessed over the past month has usually been profitable, according to a Goldman Sachs Group Inc. analysis of four decades of data.
Since 1980, the S&P 500 Index has generated a median return of 6% in the three months that followed a 5% decline from a recent high, according to the Goldman strategy team led by David Kostin.
The benchmark has slumped 8.5% from its mid-July peak.
“Corrections of 10% have also been attractive buying opportunities more often than not,” although the track record is not as strong as after a smaller drop, Kostin wrote in a note.
Returns after a 5% decline have been positive in 84% of episodes, the research shows.
A semblance of calm returned to global markets on Tuesday, with some of the worst-hit indexes rebounding from a slump driven by concern over a U.S. recession and extreme valuations in the technology sector.
Quantitative strategists at JPMorgan Chase & Co. said institutional investors had bought the dip Monday, with about $14 billion purchased during market hours and $6.7 billion sold at the close.
Strategists’ Concerns
Kostin’s team stops short of giving a recommendation from the findings, but cautions that the outlook for the benchmark index following a slump of 10% has been “markedly different” when it has taken place in an environment of resilient economic growth than when it has happened as part of a correction ahead of a recession.
They note that U.S. equities are still not pricing in an economic contraction, even though growth-sensitive cyclical stocks have trailed defensive shares in this month’s rout.
