Goldman’s Top Clients Are Ready to Join the Rally Again

Stocks saw a positive uptick this morning as the Dow remained on track for its longest winning streak since February 2017. Today’s gain kicked off a busy week of important earnings reports and a significant policy decision from the Federal Reserve.

The Dow jumped 0.57%, marking an 11-day winning streak, as the S&P followed suit, rising 0.47%. The tech-heavy Nasdaq Composite posted a meager gain of 0.18% by comparison.

The Energy sector was the star performer in the S&P, surging over 2% as oil and gasoline futures touched a three-month high. Oil giant Chevron soared by more than 2% after it announced preliminary Q2 adjusted earnings that exceeded analysts’ expectations.

Despite an already impressive 10-day rise for the Dow, stocks continued their upward trajectory. All three major indexes finished last week with moderate gains.

Steve Eisman, senior portfolio manager at Neuberger Berman, explained why he thinks stocks are still rising:

“So far, there’s no evidence of a recession. So as long as there’s no evidence of recession, and I think the market will probably continue to melt up; people are chasing.”

However, this week’s flurry of earnings and the Federal Reserve’s policy meeting—the last until September—could challenge the recent rally. The Fed is largely expected to hike rates by a quarter percentage point by the end of its Wednesday meeting. Market watchers will be keenly attuned to comments by Chair Jerome Powell for insights on the central bank’s strategy in ensuring a smooth economic landing.

Wall Street is prepping for earnings reports from approximately 150 S&P 500 companies this week, nearly 30% of the broader index. Big tech companies such as Google-parent Alphabet, Microsoft, and Meta are due to report. It’s also a pivotal week for several big pharma and industrial companies, as well as the oil sector.

Traders will also be keeping an eye on the personal consumption expenditures index, the Fed’s preferred inflation measure, due at the week’s end.

But perhaps the most interesting thing to happen today concerned a note from Goldman Sachs’ Tony Pasquariello, head of hedge fund coverage. He shared insights from recent client meetings that revealed the attitudes of Goldman’s wealthiest customers.

Notably, Pasquariellos says there’s now a general acceptance of how well the US labor market has performed. The Federal Reserve’s ability to curb core inflation without disrupting the labor market or major asset groups, such as stocks, housing, and corporate credit, was a matter of discussion.

Despite the rally, he said that many participants seemed reluctant to fully endorse it, with sentiment leaning towards caution rather than outright enthusiasm. Clients questioned how US rates would behave if the narrative of disinflation without a recession continues to hold.

Other hot topics included AI and the future performance of the S&P. Particularly, whether the index’s year-end performance would be driven by the big seven or the field. Pasquariello expressed a preference for the former.

Finally, there was a clear interest in a potential breakout in gold, a sentiment shared by Pasquariello. Given the current macro conditions, a gold rally would make sense here. A halt to rate hikes and the risk of reinflation has the potential to send gold to new highs.

Overall, the current risk appetite seems to be at its lowest since the start of the COVID era. A strong rally over the last few weeks has clients wondering whether stocks can truly go higher. That being said, they may be ready to chase if the S&P begins to accelerate again.

“It doesn’t feel like many are left fighting the rally, nor did I encounter a fund that felt overly long,” Pasquariello said.

“In a way, I’d characterize sentiment somewhere between relaxed on the downside risks, yet reticent to play for real upside.”

If earnings skew bullish this week and Powell delivers dovish remarks in his post-hike press conference, the market could easily blast higher as lukewarm bulls start buying with both hands despite overbought conditions.


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