Goldman Sachs forecasts 15% fall in UK stocks over next three months
Posted on 06 December 2011 with 2 comments from readers
Goldman Sachs is warning that the UK stocks are going to fall by 15 per cent over the next three months because they are overvalued for the recession now happening in Europe. The highly diversified UK bourse is a proxy for the rest of the world.
A note from S&P suggesting all the eurozone banks would lose their triple-A ratings if this week’s summit falls short also brought the Asian rally to an end. Is that it for the Santa Claus rally?
The pattern for European Union summits is well established. A rally as the summit approaches. Market jitters in the days before. Then a minor rally followed by a larger renewed sell-off when the true disappointment about the outcome is revealed.
No different this time
So here we go again, although markets that know what to expect generally turnaround and do something different.
There is plenty of room to be gloomy about the outlook. Goldman is right on that. Consider Ryanair is down eight per cent in passenger numbers over a year ago. In the 2008/9 crisis Europe’s largest airline kept expanding by slashing fares.
If even the strongest and most entrepreneurial companies are in trouble then what chance for the others? And as for the banks well they are the force driving the economic contraction with their downsizing and balance sheet reductions.
There is of course every chance that this Goldman forecast is too optimistic. It assumes that the eurozone crisis is somehow resolved and that Greece does not pull the plug on everybody.
Does that mean Goldman is now shorting these markets? That would seem a fair assumption.
2 Comments posted by readers:
Yes. Goldman sax rule the real world … Er, didn’t you know that?
Ryanair’s passenger numbers dropped by 8% in November because they are grounding planes for the winter. The airline can hardly be described as struggling: pre-tax profits were up 23% for Q3 2011.
As for the Goldman forecast on the FTSE 100, the Telegraph reports it as:
“Goldman believes that the blue-chips could sink to 4,700 before climbing back to 5,400 within six months’ time and rallying to 5,800 by the end of 2012.”
Perhaps Goldman is talking down the market because they want to buy? No: they would never consider using underhand methods!