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Goldman Sachs (NYSE:GS) strategist Cecilia Mariotti has reflected on the ongoing relief rally in equities, especially in the aftermath of the Fed meeting.
The strategist believes that the risk assets are supported “by the comeback of a friendly ‘real regime’ with real rates resetting materially lower.”
For instance, Mariotti notes that US cyclical equities have retraced almost 50% vs. defensives since their trough in early July. Hence, the strategist is warning clients against being too optimistic at this stage.
“Looking at the re-pricing of cyclical assets in the US and EU, we think the market might have been too complacent too soon in fading recession risks on expectations of a more accommodative monetary policy stance,” Mariotti wrote in a client note.
In recent days, Goldman Sachs strategists warned that a recession is not fully priced in, hence Mariotti believes the market is vulnerable to hawkish surprises. This is especially the case if inflation continues to be high and “if the slowdown in activity results in a more prolonged/deeper downturn”.
“Our strategists think that from here sharp moves higher in US yields will likely have to rely on an improvement in growth sentiment. Against concerns of a continuation of the slowdown,” Mariotti concluded.
