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Goldman Sachs, BlackRock turn bearish toward equities amid ongoing market volatility

Yahoo Finance Live anchors discuss why Goldman Sachs and BlackRock are telling investors to shun most stocks.

Video transcript

BRIAN SOZZI: Now-- big financial institutions like Goldman Sachs and BlackRock are turning sour on stocks, with Goldman downgrading equities to underweight and BlackRock telling investors to, quote, "shun most stocks" because the market has not priced in a global recession. Let's start on this BlackRock note because it made me chuckle a little bit.

Great analysis, but still. First sentence out of the gate in this note-- "Many central banks aren't acknowledging the extent of recession needed to rapidly reduce inflation. Markets haven't priced that, so we shun most stocks." Simple analysis, but, to me, it makes a lot of sense.

BRAD SMITH: Well, it's about the individual names, too, that we should be looking at and paying close attention to-- and especially for the largest firms that are tracking a company like even Apple. Yesterday, we saw the majority, if not all, of the Dow components-- except for four-- in negative territory.

Apple was one of them that retained its gains, and that says a lot about the strength that a company in Goldman, or even BlackRock, would really cite at this time-- companies with strong balance sheets, cash to be able to deploy. And then, additionally, a company like Walmart, that ultimately was able to close the day in positive territory, too-- a brand that's still going to retain a lot of the consumer mindshare, even if it is just making sure that you get them in the store for the grocery department.

But then, hopefully, some of those dollars also transition into other categories within the brand, too. And so, within that, I think that's what really plays out within some of the ratings that we're going to get in this near-term period as a defensive play from many firms, too.

JULIE HYMAN: Yeah. So you have that sort of conversation and decision-making process on the part of investors, right? What are going to be the plays that could maybe work in this environment? How long is this downturn going to last? A lot of discussion about the market internals, right?

The technical indicators in this market. Bespoke is one of the folks that-- one of the groups-- one of the companies that is looking at that, and they were looking at the advanced decline line of the S&P 500. And that indication, when it goes below that green band there, stocks are so-called oversold, right? So we could be potentially looking for a bounce.

I'm looking at some of the other indicators that Bloomberg analysts were highlighting. For example, over 50% of stocks are in bear markets, are down at least 20% from their highs. They're also looking at the news, highs, and lows in the market that are hitting extremes. So there's a lot of sort of trying to read all this are we at so-called capitulation, are we at--

When Goldman and BlackRock throw in the towel, is that a signal that things are as bad as they're going to get? We thought that maybe back in June, but here we are retesting the lows.

BRIAN SOZZI: It doesn't seem that way. And Goldman-- just digging into that note a little bit-- they are downgrading equities to underweight over the next-- for over the next three months. What does underweight mean? Essentially means we're selling stocks. We're less optimistic on the outlook short term for stocks.

And that-- when Goldman sets this call, that means analysts, probably, across their sector, that cover a lot of these companies, whether it's Apple, Walmart, a Caterpillar, you name it, they're out there lowering estimates, their profit estimates for the next couple of quarters, because of what this economic team, this strategy team is, in fact, saying.

But we're seeing, now, I think, the knock-on effects of the market turning down, economic data continuing to sour, and now you're playing seeing Wall Street firms try to play catch-up to all these things happening, and that is likely to put more pressure on the markets.