Goldman strategist says it’s premature to dismiss inflation fears

While inflation rates may have peaked and started to come down, for most people prices are still rising: Peter Oppenheimer.
Image: Daniel Acker, Bloomberg

As equity markets rally on easing rate-hike concerns, Goldman Sachs Group Inc.’s chief global equity strategist said it’s premature to bet the pressure is reducing on the Federal Reserve to tighten monetary policy.

While the slump in stocks since the beginning of the year reflects investor expectations of a contraction in growth, “I don’t think a deep recession is being priced yet,” Peter Oppenheimer said on Bloomberg TV, adding that tighter financial conditions would be needed “before we can see a bottoming of risk assets.”

Oppenheimer’s comments serve as a reminder that a recent rally in stocks may be built on flimsy foundations. The S&P 500 index is more than 5% above June’s closing low following Friday’s strong rally, while the Stoxx Europe 600 gained on Monday to extend a rebound from a trough level of earlier this month.

The recent gains come after policy makers pushed back against even bigger hikes in interest rates and fresh data showed a greater decline in US consumers’ long-term inflation expectations, spurring wagers that a peak in inflation could be near. Yet Oppenheimer said that even if the headline figure starts to come down, it’s too soon to expect that consumer prices would follow suit quickly.

“It’s premature to believe inflation is going to come down quickly or the pressure has eased for the Fed and other central banks to tighten,” he said. “While inflation rates might have peaked and started to come down, the reality for most people is that prices are still rising.”

Strategists at Morgan Stanley led by Michael J. Wilson also don’t believe stocks have seen a bottom. Wilson said on Monday he expects US equities to remain in a bear market even if the economy were to avoid a recession.

Goldman’s Oppenheimer, meanwhile, is more bullish about the next 12 months for equity markets. “Keep in mind bear markets nearly always trough when you’re in a recession and data is bad and earnings are still being revised down,” he said, adding that cyclical stocks and technology are likely to lead the rally once equities show a meaningful recovery.

© 2022 Bloomberg L.P.

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