Goldman Sachs strategists turn positive on global stocks for next three months

Goldman Sachs Group strategists have upgraded their outlook for global stocks over the next three months, shifting from a neutral stance. They now to recommend increased exposure amid their view that strong corporate earnings could support stocks already trading near all-time highs, Bloomberg reports.

Goldman Sachs strategists have become more optimistic about the near-term outlook for global equities. Stock valuations have become more attractive after rising oil prices and bond yields stalled the rally, while the outlook for quarterly earnings remains healthy, the bank’s strategy team, led by Christian Mueller-Glissmann, wrote in a note.

“Earnings growth remains supportive for equities and the recent valuation de-rating has improved asymmetry into the third-quarter earnings season,” the strategists noted.

The stock market faces an earnings season that will be crucial to sustaining the rally through year end, according to Bloomberg. Analysts expect S&P 500 companies to report average earnings growth of 25% year over year, among the strongest increases on record, according to Bloomberg Intelligence data. Goldman Sachs expects companies to clear even that high bar.

The bank continues to view high interest rates and energy prices as the main near-term threats to stocks. The U.S. midterm elections could also increase volatility. Goldman favors a so-called “barbell strategy,” combining global tech stocks with selected stocks sensitive to interest rates that have become cheaper since the summer. It recommends buying U.S. and Asian stocks while limiting European equities’ weight in portfolios.

Investors hope the third-quarter earnings season, which kicks off this week, will help stocks to withstand the ongoing crisis in the Middle East. By all estimates, companies’ financial results are expected to be strong, CNBC reports.

FactSet’s John Butters estimates that S&P 500 companies will post third-quarter earnings growth of 29.6%. If that forecast materializes, it would mark the fourth consecutive quarter of earnings growth above 25%, fueled by the rapid buildout of AI data centers, CNBC notes.

However, investors will pay even closer attention to what company executives say about how their businesses and customers are coping with rising fuel prices and borrowing costs.

“US equities are primed to make fresh highs this week... Rising rates are placing a higher hurdle that most stocks are failing to clear, yet robust tech results should keep headline index momentum intact,” Bloomberg Intelligence analyst David Savage said.