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Goldman's Kostin: 2 Factors Will Prevent Market Correction

Image: Goldman's Kostin: 2 Factors Will Prevent Market Correction
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By    |   Monday, 11 Sep 2017 04:36 PM

Goldman Sachs strategist David Kostin said subdued optimism and a strong consumer will stand in the way of a stock-market correction.

Pessimists worry that stretched valuations, tighter Fed policy and other factors will lead to a correction, CNBC explained.

"Investors today are situated between skepticism and optimism," David Kostin, Goldman's chief U.S. equity strategist, said in a report for clients. "'Tormented bulls' best describes investor mentality," CNBC quoted the report as saying.

To be sure, Kostin cites plenty of reasons for investors to fear the market could slide, but doesn't believe taken together they will cause a major sell-off. Among the issues are deceptively low volatility, stretched valuations, an aging economic expansion, tightening Fed policy, falling bond yields and political uncertainty.

However, he said the factors converging into a correction is a "low-probability event" because of subdued market sentiment and strong consumer spending, which accounted for 69 percent of GDP as of the second quarter.

A "correction" is commonly defined as a temporary drop of at least 10 percent adjust for an overvaluation.

Monday on Wall Street, the S&P 500 surged over 1 percent to a record high close as tropical storm Irma caused less damage than expected in Florida, and after North Korea did not test-fire missiles over the weekend, which some had feared, Reuters reported.

All 11 major S&P 500 sectors rose, led by financial stocks, with insurers advancing as Irma, once ranked as one of the most powerful hurricane recorded in the Atlantic, lost power.

Irma caused severe flooding in many Florida cities and left more than 6 million homes and businesses without power, but damage appeared to be less than expected. That relieved investors, especially in the wake of Hurricane Harvey, whose devastation is estimated to dent third-quarter economic growth.

Geopolitical tensions eased after North Korea did not mark its founding day on Saturday with another launch of a long-range missile, which the United States and its allies had been bracing for.

“It is a risk back on situation, people are going back into the market,” said Neil Massa, senior equity trader at Manulife Asset Management in Boston. “For now, it is a relief rally for things on both ends - geopolitical and weather wise.”

(Newsmax wires services contributed to this report).

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Goldman Sachs strategist David Kostin said subdued optimism and a strong consumer will stand in the way of a stock-market correction.
goldman, kostin, market, correction
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2017-36-11
Monday, 11 Sep 2017 04:36 PM
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