“The likelihood of tail events is not symmetrical,” Kostin said. “The market path in 2019 will depend on investor perception of the longevity of the current economic expansion.”
But investors do not sound optimistic. Kostin said that “scores” of Goldman Sachs’ recent meetings with clients “indicate that many investors believe the US economy will enter a recession in 2020.”
With that expectation, the firm recommends investors own “high quality” stocks with attributes such as strong balance sheets, high return on equity and consistent cash flow. Alphabet, PepsiCo and Mastercard are among the stocks in its high quality basket.
More broadly, Goldman also recommends investors favor utilities and communication services as these two defensive sectors “typically outperform in decelerating GDP growth environments,” Kostin added.
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