Goldman Sachs upgrades global equities as earnings growth outlook improves

16:15

By: Azzat Manal

Goldman Sachs upgrades global equities as earnings growth outlook improves

Goldman Sachs has upgraded its recommendation on global equities from “neutral” to “overweight” for the next three months, citing an improving outlook for corporate earnings despite stock markets trading near record levels.

In a note published on Monday, the bank’s strategists said recent increases in oil prices and bond yields had limited gains in equity markets. However, the resulting pullback in some valuations could create more attractive entry points for investors, while expectations for corporate profit growth remain supportive.

The upgrade signals greater confidence in the near-term prospects for global stocks, although higher energy costs and rising borrowing yields continue to pose risks. These factors can put pressure on companies by increasing operating and financing expenses, while also influencing investor appetite for riskier assets.

Goldman Sachs maintained its positive outlook for global equities over a 12-month horizon. The bank sees upcoming third-quarter corporate results as a potential catalyst for market performance during the remainder of the year, particularly if companies demonstrate that earnings growth remains resilient despite economic and financial pressures.

Estimates from Bloomberg Intelligence point to a strong earnings season for major US companies. Profits among firms in the S&P 500 index could rise by 25% in the third quarter compared with the same period a year earlier, according to the projections cited in the report. If realised, that growth would represent a historically strong performance.

Investors are now closely monitoring results from major listed companies for evidence that profit growth can justify elevated stock valuations. Revenue trends, profit margins and corporate guidance are likely to be particularly important as markets assess whether the current rally can continue.

The outlook remains sensitive to developments in energy markets and government bond yields. Higher oil prices can feed into inflation and increase costs for businesses and consumers, while rising bond yields can make fixed-income investments more attractive relative to equities. Both factors may complicate the outlook even if corporate earnings remain robust.

Goldman Sachs’ revised recommendation reflects the balance between these pressures and the potential for stronger profits to support share prices. However, the bank’s assessment is a market outlook rather than a guarantee of future returns, and equity performance will depend on how earnings, inflation and financial conditions evolve.