Goldman Sachs Has 10 Reasons the Bull Market Has Room to Run

By Lee Jackson Published Sep 8, 6:54AM EDT

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Goldman Sachs Has 10 Reasons the Bull Market Has Room to Run — © Thinkstock

The staggering run off the market of the March lows has surprised almost everybody, including market veterans, as we experienced one of the shortest bear markets in history after a stunning 35% drop in less than a month. With all of the indexes at or near all-time highs, and with the economy crawling back to some semblance of its pre-COVID-19 luster, is it possible that there is still room to run for what seems like a tired bull?

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In fact, there are some who think just that, despite the howls of the bears that tout another crash right around the corner. Peter Oppenheimer from Goldman Sachs Global Strategy team is out with a new research piece listing 10 separate reasons that the bull market has further to run.

Note that Oppenheimer’s report says right up front that the huge rise from the March lows and a massively large bullish options positioning makes us ripe for a near-term setback, one that may have started late last week.

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With that caveat in mind, they present these 10 top reasons while the bull market run can go higher:

1) We are in the first phase of a new investment cycle, following a deep recession. The ‘Hope’ phase – the first part of a new cycle, which usually begins in a recession as investors start to anticipate a recovery, is typically the strongest part of the cycle. That is what we have been seeing this year.

2) The economic recovery looks more durable as vaccines become more likely.

3) Our economists have recently made upward revisions to their economic forecasts and it is likely that analysts’ expectations will follow.

4) Our Bear Market Indicator (which was at very elevated levels in 2019) is pointing to relatively low risks of a bear market despite very high valuations.

5) Policy support remains very supportive for risk assets. There is both a central bank ‘put’ – a belief that central banks will be there to provide as much liquidity as is required – and a fiscal ‘put’ as governments have scaled up their willingness to support growth.

6) The Equity Risk Premium has room to fall.

7) The resumption of zero nominal interest rate policy in the recent past, together with the extended forward guidance, has created an environment of greater negative real interest rates. This should be highly supportive to risk assets in an economic recovery.

8) Equities offer a reasonable hedge to higher inflation expectations.

9) Equities look cheap relative to corporate debt, particularly for strong balance sheet companies (60% of US companies and 80% of European companies have dividend yields above the average corporate bond yield).

10) The digital revolution continues to gather pace. We think this transformation of the economy and stock markets has further to go. These companies could continue to drive valuations and returns in this bull market.

One thing that is very important for investors to remember is that a massive part of the upside in the markets, especially the Nasdaq, is a result of huge runs by mega-cap technology stocks.

However, with the tailwind of continued government stimulus, hopes for a COVID-19 vaccine, a continued renewal in the economy (which was booming prior to the pandemic) and continuation of low interest rates, a renewal of the bull run off the March lows is indeed possible, albeit perhaps after a 5% to 10% pullback.

It’s also important to point out that almost 70% of all stocks have gone up less than the S&P 500 index. An astonishing half of all stocks in the United States are either flat or down in the past three months. If you extend that out over the past year, you once again have the S&P 500 beat 70% of all stocks, but this time, 58% of all stocks are either flat or down.

What this means, and we saw this in the huge selling late last week of both Tesla Inc. (NASDAQ: TSLA | TSLA Price Prediction) and Apple Inc. (NASDAQ: AAPL), is that while some of the technology giants are very crowded trades, and they may be poised for some intense profit-taking, especially as 2020 starts to wind down, a ton of stocks are offering investors very reasonable entry points.

Lastly, there is a distinct possibility for rotation to value from growth and to cyclicals from consumer discretionary, as well as other market readjustments that could help the bull market on its upward trend. It makes sense though to be very careful here short term, raise some cash, take some profit from winners and see if we don’t get a typical September and end-of-the-quarter pullback—one that we may already be in.

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About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.