(Bloomberg) -- New data showing resilience in the US labor market put a lid on the US stock market’s five-week advance, with further declines representing a buying opportunity, according to Goldman Sachs Asset Management’s Alexandra Wilson-Elizondo.
Unexpectedly strong hiring numbers for November touched off a repricing of Federal Reserve rate moves, with swaps contracts now indicating that investors view a March rate cut as unlikely. There’s potential for weakness in stocks after the $4 trillion rally that began in October as the market adjusts to the Fed potentially holding rates higher for longer.
Wilson-Elizondo, deputy chief investment officer of multi-asset solutions at GSAM, advised that any pullback under that premise would be deemed a head fake, with prices moving in one direction before quickly reversing.
“If the market trades down, it is a good opportunity to rebalance or buy the dip” she said in a phone interview. “It’s too early to be underweighting the risk premium of equities.” GSAM has $2.7 trillion in assets under management.
Economists at Goldman Sachs expect the Fed to start cutting rates in the second half of 2024 and forecast growth with less inflation, which should be supportive for markets, particularly large cap stocks.
“We do believe in the quality factor and large cap will tend to outperform in these types of environments and despite the valuations seeming tight we do believe that there is a room for upside,” Wilson-Elizondo said.
GSAM isn’t chasing returns in small caps despite the recent run, as that group of stocks tends to underperform in later stages of the rate cycle, she said.
The company is also “cautiously constructive” on rates in early 2024 and expects investors will redeploy capital to the long end of the curve. “We believe that a portion of the 8 trillion dollars sitting in money market funds will ultimately look to create confidence in future cash flows by moving out to the belly of the curve,” Wilson-Elizondo said.
--With assistance from Terrell Holt.
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