Goldman’s Abby Joseph Cohen Warns Over ‘Considerable’ Market Downside

(Bloomberg) - According to Abby Joseph Cohen of Goldman Sachs Group Inc., there is a possibility in the stock markets of significant decline ahead of the US election as baffled strategists for economic and political unpredictability.
"I'm pretty concerned that there could be significant downside," the senior investment strategist said in an interview with Bloomberg TV, depending on "factors we can't easily incorporate into our models." “This includes: What will the Congress do? What will the president say? And of course the election result. "
Cohen, who was America's best-known equity strategist in the 1990s, pointed to "large valuation gaps" in the equity markets, with the recovery since March largely driven by a handful of mega-cap tech companies. This could make the market more susceptible to disappointment. The markets only eased this week after President Donald Trump announced that he would suspend economic talks until after next month's elections.
“Those of us who have really done maths careers should feel very humble right now in my opinion as we realize that the models may not be able to adequately reflect all of the volatility in not just the markets . But in business, in politics and of course in investor sentiment, ”said Cohen.
According to Goldman, the S&P 500 index is currently "modestly" undervalued based on expectations of corporate earnings growth and accommodative measures by the US Federal Reserve, the strategist said. She warned that “intense” volatility had increased ahead of the elections and that all eyes were currently on the fiscal stimulus negotiations.
A "blue wave" of victories for Joe Biden's Democrats could bring more security to the government's fiscal measures, according to Cohen. Investors now see the possibility of democratic victory as positive for the longer-term prospects for corporate profits and economic growth in 2021 and beyond, she said.
'Blue wave'
“What we have seen from investors in the past few days is that a 'blue wave' may not be that bad because it would give us more security about politics, especially about using financial policy to help ours Economy at this point, ”said the strategist.
She reiterated Fed Chairman Jerome Powell's comments that more financial support is needed to sustain the economic recovery.
Cohen said that due to their discussions with investors, market participants were unsure of what Trump's plans for the second term would be, adding that infrastructure policies were "disappointed" and concerned about possible environmental and health measures.
U.S. stocks rose Thursday after Trump advocated a gradual approach in a barrage of overnight tweets and House spokeswoman Nancy Pelosi signaled openness to stand-alone airline facilitation law.
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