Dear clients,
According to Goldman Sachs strategists, strong earnings results to be released soon could reverse the decline in technology and growth stocks, which have been hurt by rising Treasury yields and, according to one report, are trading at their lowest levels in six years.
The so-called „Magnificent Seven“ — Apple, Microsoft, Amazon.com, Alphabet, Nvidia, Tesla and Meta Platforms — have fallen 7% over the past couple of months, compared with a 3% decline for the S&P 500 index as a whole, as Treasury yields jumped more than 60 basis points to 16-year highs.
Those declines have caused forward price-to-earnings ratios for companies to fall 20% over the past two months, leaving them trading at the largest discount to the market based on long-term growth since January 2017, Goldman Sachs said in a note on 1 October. At the same time, group sales growth is expected to be 11% in the third quarter, compared with 1% for the S&P 500 index, the company said.
Goldman strategists said the „megacaps“ have collectively beaten consensus forecasts for sales growth 81% of the time and exceeded earnings expectations in two-thirds of the seasons since the fourth quarter of 2016.
„The divergence between lowering estimates and improving fundamentals presents new opportunities for investors,“ they wrote.
The S&P 500 index has fallen nearly 5% over the past 10 trading days, but is up just over 11% since the start of the year.
