LIVE MARKETS-Macro cycle vs market cycle
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MACRO CYCLE VS MARKET CYCLE
Markets are hard to read at the moment and Goldman Sachs have another theory to throw into the mix as to why, suggesting in a Friday note that the market cycle and macro-economic cycle are in different places.
As for the market cycle, everyone has been warning about "hot valuations" in pockets of equities and credit for a while, something more characteristic of the later stages of a bull market.
If you think about it that way, underperforming tech stocks, worries about overvaluations, especially in shares of software companies that could be hit by AI, make sense.
But the economy is getting stronger, helped by fading tariff effects, fiscal support, and easier financial conditions -- the latest example is better-than-expected PMIs in Europe on Friday.
And Goldman say this sturdy macro news alongside increasing signs of fragility in markets "reflects that it is later in the market cycle than in the macro cycle".
That, they say, is why we are seeing classically cyclical assets — EM equities, the Aussie dollar, copper and key subsectors of the US equity market (such as capital goods and materials) — getting big upgrades, alongside more dispersion and volatility in the AI and megacap tech themes that have already run a long way.
Can this contradiction last? Goldman strategists think it could, given that tech "is still a more prominent part of the equity market than the economy."
And so, they reckon there is scope for cyclical assets to continue to draw support from ongoing tailwinds from a U.S. economy that appears to be heating up.
(Alun John)
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