Bloomberg News reports that companies in the United States with business operations within the country are likely to perform better than those exposed to Europe. This is because, as strategists at Goldman Sachs Group Inc. stated, Europe is all set for an impending recession.
A team of Goldman led by David Kostin revealed that while the path for growth of the United States is not certain, the economic condition in Europe is in dire condition.
Despite the worries investors have about the US equity market, the strategists said that they believe the market can offer greater returns that are risk-adjusted compared to the recession-plagued markets in Europe.
For US exposure, Goldman’s preference comes at a time that is turning out to be a difficult year for European businesses amidst a gas crunch, stricter central bank policy, and rising inflation. In terms of the dollar, the Stoxx Europe 600 has manifested a slide as compared to S&P 500 in the current year. It was also found that a Goldman basket of US companies with a record of 100% domestic sales performed better than one tracking with higher sales to Europe.
A Safer Bet
The strategy described above is just one of the four that Kostin’s team identified for driving equity performance through the year’s end. The others are the stocks of high-quality fundamentals, big dividend payers, and the so-called value shares.
Strategists also stated that investors worried about economic contraction must own dividends, either through individual stocks or through the futures. Bloomberg News reports that dividends have been offering exposure to the investors for the fundamental growth of the S&P 500 while at the same time minimizing exposure to the risk associated with equity valuation.
Kostin, along with his team, is keen on those quality stocks that usually score more on the metrics, which also include strong balance sheets and sales that are stable, along with earnings growth. They also anticipate that the S&P 500 will end 2022 at about 4,300 points or even higher in comparison to the close of Friday, with the assumption that the Federal Reserve tightening will lead to a consistent deceleration in the growth of the US economy.
While mirroring the preference of Goldman for the cheaper stocks, strategists at Barclays Plc, including Matthew Joyce, on Monday found turning overweight on value stocks, stating that the higher for, the longer rates are not reflected yet in growth and value.
