Goldman Outline 10 Reasons Why The Bull Market Has Further To Run

Goldman Sachs note that "the strong rise in equities from the March trough, coupled with bullish options positioning, makes a near-term setback likely. But we think there are 10 strong reasons why this bull market should continue:

1. We are in the first phase of a new investment cycle, following a deep recession. The 'Hope' phase – the first part of a new cycle, which usually begins in a recession as investors start to anticipate a recovery, is typically the strongest part of the cycle. That is what we have been seeing this year.
2. The economic recovery looks more durable as vaccines become more likely.
3. Our economists have recently made upward revisions to their economic forecasts and it is likely that analysts' expectations will follow.
4. Our Bear Market Indicator (which was at very elevated levels in 2019) is pointing to relatively low risks of a bear market despite very high valuations.
5. Policy support remains very supportive for risk assets. There is both a central bank 'put' – a belief that central banks will be there to provide as much liquidity as is required – and a fiscal 'put' as governments have scaled up their willingness to support growth.
6. The Equity Risk Premium has room to fall.
7. The resumption of zero nominal interest rate policy in the recent past, together with the extended forward guidance, has created an environment of greater negative real interest rates. This should be highly supportive to risk assets in an economic recovery.
8. Equities offer a reasonable hedge to higher inflation expectations.
9. Equities look cheap relative to corporate debt, particularly for strong balance sheet companies (60% of US companies and 80% of European companies have dividend yields above the average corporate bond yield).
10. The digital revolution continues to gather pace. We think this transformation of the economy and stock markets has further to go. These companies could continue to drive valuations and returns in this bull market."