Goldman Sachs says S&P 500 returns may fall as US economic growth peaks. Buy these shares.

Equities returned on horseback on Wednesday, with both the Dow and S&P 500 indices ending at their second-highest level ever as investors continue to smile over strong economic growth prospects.

Strategies at Goldman Sachs are bullish on the US economy and expect subsequent annual growth in US gross domestic product to increase by 10.5% in the second quarter of 2021. This would be the strongest quarterly growth rate since 1978 (outside the mid-year increase late 2020, when the economy recovered from a sudden halt).

But it may not be good for stocks. Our today’s call is from the team at Goldman Sachs, led by Ben Snider, who warns that when economic growth peaks, investors should expect lower stock returns and higher volatility.

Investment bank economists see US GDP growth slowing modestly in the third quarter of this year before continuing to decline over the next few quarters.

Short via Goldman Sachs

“Falling growth is usually associated with weaker, but still positive, stock returns and higher volatility,” the strategists say. Since 1980, the S&P 500 has SPX,
+ 0.93%
has seen an average monthly return of 1.2% when economic growth was positive and accelerating, but only 0.6% when growth was positive but declining.

In fact, equities subordinate when growth peaks. Investors who bought the S&P 500 when the Institute for Supply Management production index was above 60 – signal the highest growth, strategists say – saw median returns of -1% next month and only 3% over the following year. In March, the ISM production index was 65 years old.

But that’s not all bad news. Outside the United States, the global economy is still in tears. Economists at Goldman Sachs expect economic growth in Europe, Japan and new markets outside China to peak later than in the US – in the third quarter of this year. “As a result, some cyclical parts of the U.S. stock market should perform better in the coming months than they typically do when U.S. growth begins to slow,” the strategists say.

Goldman Sachs GS,
+ 1.02%
has two pieces of advice: Buy worldwide cyclical ratios relative to domestic cyclicals and buy a basket of “Europe reopening” stocks that have lagged behind “US reopening” stocks.

The hum

Cash calls at Credit Suisse: The bank will raise 1.7 billion Swiss francs ($ 1.9 billion) in additional capital in the wake of the collapse of hedge fund Archegos Capital. Credit Suisse CS,
+ 0.87%
said it would lose an additional $ 654 million from fire sales, which saw the liquidation of positions approaching $ 30 billion in value in March, following an initial hit of $ 4.7 billion.

At the economic level, initial jobless claims are expected to show that 603,000 Americans filed for unemployment last week, up from 576,000 the week before. This figure is due at 8:30 east along with continued unemployment claims in the week of April 10, before the existing home sale in March comes out at. 10 together with leading economic indicators.

Europe is moving towards the world’s first major laws on artificial intelligence. The European Commission – the executive branch of the European Union – on Wednesday proposed limiting the use of face recognition by the police and banning certain types of AI systems.

On Wednesday, representatives from the technology giant Apple AAPL,
+ 0.29%
and the Google parent alphabet GOOGL,
-0.03%
was grilled by the Senate Judiciary Committee under competition policy, cartel and consumer rights over the extensive powers of the App Store and Google Play Store.

In India, COVID-19 returns with revenge. The world’s second most populous country reported a record more than 314,000 new infections on Thursday as the country’s health system shakes to the brink.

The markets

US stock market futures YM00,
+ 0.01%

ES00,
+ 0.02%

NQ00,
-0.07%
hovering around flat after Wall Street came back to its winning ways on Wednesday.

European shares UKX,
+ 0.29%

DAX,
+ 0.61%

PX1,
+ 0.73%
rose on Thursday amid a wave of strong earnings reports, but it was Tokyo that led a rise in Asian stocks HSI,
+ 0.47%

SHCOMP,
-0.23%
after Nikkei 225 NIK,
+ 2.38%
rose 2.4% after two days of losses.

The diagram

Chart via Bank of America

Our daily overview shows the increase in sustainability reports among S&P 500 companies. In honor of Earth Day, read more about what it means and check out six other charts showing “green” of the S&P 500.

Tweeting

Via Twitter

After the Financial Times first reported on Wednesday that Uber is eating UBER,
+ 0.52%
would expand to Germany, shares in rival Just Eat Takeaway TKWY,
-0.37%

JET,
+ 0.27%
(JET) fell more than 4%. It spurred a bizarre exchange between the top executives of the two companies, started by JET’s leader, the Dutch billionaire Jitse Groen.

Random readings

How small ‘beach huts’ became the hottest item in British property.

Tra-la-la: A $ 13,000 whistle that disappeared nearly a decade ago in a taxi has been returned to the owner after police picked it up from a Boston music store.

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