Goldman Sachs (GS) has raised its odds on a US recession within the next 12 months to 25-30%, but told clients to stay invested in US stocks for the foreseeable future.
Sharmin Mossavar-Rahmani, chief investment officer of Private Wealth Management at Goldman Sachs, told journalists in London on Tuesday that America is “still preeminent” and investors should continue to over-index on US stocks.
The endorsement of the US economy comes despite rising recession fears, the ongoing trade war with China, and signs that American stocks look expensive compared with other assets.
Goldman’s investment strategy group, which advises the consumer and investment management division, raised its odds on a US recession within 12 months from 15-20% to 25-30%, as a result of recent inversions of the yield curve.
But Mossavar-Rahmani, who is part of the strategy group, said: “Our view is we still have time.”
She called for “a significant overallocation of US assets,” extending a position Goldman Sachs has held since January 2010. The investment bank has told clients to remain overweight US stocks 78 times in the near decade since then.
Mossavar-Rahmani pointed to the fact that the US economy was continuing to out-innovate peers and corporates are generating far greater earnings growth than international rivals.
While valuations “look expensive,” Mossavar-Rahmani said beginning valuations are a poor indicator of gains over the following year.
Goldman’s Investment Strategy Group is forecasting growth of 2.3% in the US this year and 2.1% in 2020. While this is a slowdown on the 2.9% growth registered last year, it’s far from recession levels.
Mossavar-Rahmani’s part of the bank advises high net worth clients, family offices and select institutions, such as educational foundations and charities. The division looks after about $1.6 trillion (£1.3tn) in assets.
US markets are in the midst of their longest bull market on record, which has heightened fears that a downturn could be around the corner.
“Expansions are going on a lot longer now,” Mossavar-Rahmani said, citing a greater emphasis on services rather than manufacturing, stabilising policies such as unemployment benefits, and more thoughtful central bank policy.
Mossavar-Rahmani said the biggest threats to this forecast were a too-fast tightening of policy by the US Federal Reserve or external shocks, such as a faster-than-expected slowdown in the Chinese economy or a no-deal Brexit that spooks international markets.
Separately on Tuesday, Nomura raised its forecast for US real GDP growth this year to 2.3% but said “elevated trade tensions and other factors will likely slow growth over 2019-20 before a modest recovery in 2021.”
“Recession risk is elevated, but strong consumer fundamentals will help to sustain the expansion,” the Japanese bank said in its monthly global economic outlook.
Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.