- Goldman Sachs boss David Solomon thinks Wall Street’s recent rally is out of step with reality and markets have risen too quickly from their March slump.
- He said at the Bloomberg Invest Conference Wednesday: “The equity market does seem to be a little bit ahead of my view of the future earnings performance of businesses.”
- But Solomon is predicting a V-shaped recovery for the US economy despite a rise in COVID-19 cases.
- The International Monetary Fund said Wednesday that global output will shrink by 4.9% in 2020, higher than its initial 3% forecast.
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Goldman Sachs boss David Solomon thinks Wall Street’s recent rally is out of step with reality and markets have risen too quickly from their March slump.
Speaking at the Bloomberg Invest Conference on Wednesday, Goldman’s CEO said: “The equity market does seem to be a little bit ahead of my view of the future earnings performance of businesses.”
He added: “If I’m right about that, you’ll see a re-balancing of that over time.”
Investors have been piling into assets since the crash in March, and stocks have risen sharply. Since touching a low of 2237.40 on March 23, the S&P 500 has rallied more than 36%.
Central banks across the globe have slashed interest rates close to the zero which has led to many investors to look for opportunities in the stock market.
Solomon said equities are “the only game in town” for seeking long-term returns.
He said markets are being overly bullish about the economy re-opening and are neglecting the difficulty that confronts the world on how to live with the virus over the long-term.
All three major US indices closed lower on Wednesday as investors took account of some of those fears. The Dow shed 700 points after US states such as California, Arizona, Texas, and Florida saw a surge in cases.
Even though he expects a correction in equities, Solomon is predicting a V-shaped recovery for the US economy, even though it is being hit by a rising number of coronavirus cases.
Solomon has become the latest voice in the industry to project a V-shaped recovery once COVID-19 dissipates.
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On Monday Blackstone chief executive Stephen Schwarzman said he expects a steep V-shaped rebound to arrive this summer.
Markets’ optimism on a V-shaped recovery puts them at odds with the latest predictions by the International Monetary Fund, which on Wednesday slashed its forecast for the global economy again, this time predicting an even more drastic recession and longer recovery from the coronavirus pandemic.
The IMF now expects global output to plummet by 4.9% in 2020, higher than the 3% drop it previously made in April.