A robust employment report in the US, set to be released at the end of the week, may trigger a significant shift in investor sentiment, prompting a move away from high-flying stocks with strong earnings towards those with more modest profit margins, according to a team of strategists at Goldman Sachs Group Inc.
If the Labor Department’s jobs data reveals a resilient labor market, investors may reassess their expectations, pricing in a lower likelihood of a sharp downturn in the job market. This could lead to a rotation out of pricey, high-quality stocks and into less-loved, lower-quality firms.
The US equity market has recently scaled new heights, buoyed by hopes that the economy can sidestep a recession, thanks in part to more accommodative monetary policies. This week, all eyes are on the nonfarm payrolls report, which is expected to show a labor market that remains healthy, albeit with some signs of moderation.
Notably, a “quality” investment strategy, which targets the most profitable companies, has been one of the top performers in the US market so far this year. Meanwhile, Morgan Stanley’s Michael Wilson has emphasized the importance of the labor market in driving stock prices, rather than interest rate expectations. In a recent note, Wilson reiterated his preference for large-cap stocks and higher-quality sectors.
Leave a Reply