Goldman Sachs argues that investors should be buying
stocks following a 10% correction in all major US
The firm highlights areas of the equity market that
have historically outperformed following corrections.
Now that the S&P 500 has experienced a
long-awaited 10% correction, it’s time for investors to start
buying in earnest.
So says Goldman Sachs, which notes that
traders who started buying the benchmark index after past 10%
declines made money over the next three, six, and 12 months 75%
of the time.
What’s more, per Goldman’s experience, investors want to
“Despite the market decline, investors have expressed agreement
with our view that fundamentals remain healthy,” Goldman chief US
equity strategist David Kostin wrote in a client note. “Rather
than potential downside, most conversations have focused on what
to buy in anticipation of the eventual recovery.”
So the question then becomes: Where should they be looking to
To answer that, Goldman has looked at past post-correction
periods and found that traders have preferred cyclical
sectors to their defensive counterparts. The firm
specifically highlights materials and
industrial stocks, which have both outpaced the
S&P 500 by roughly 270 basis points during the three months
following past corrections, according to Goldman data.
Looking at specific investment factors, Goldman shines the
spotlight on low valuation (350 basis-point
outperformance vs. S&P 500) and small-cap
stocks (240 basis point outperformance) as the two best bets.
A third area for stock traders to pursue is one that’s already
been floated by Goldman in past weeks, even before the market
correction: companies with low labor costs. See
this Business Insider article from
late January for a list of the stocks included in a Goldman index
designed to track companies set to beat the market as wages rise.
Still not convinced the market is likely to bounce back, as
Goldman suggests? We’ll leave you with the chart below, which
shows the path of the S&P 500 following 11 prior instances of
market corrections. The slope of the dotted line should tell you
everything you need to know about Goldman’s stance.
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