{"id":43775,"date":"2023-08-03T00:22:18","date_gmt":"2023-08-03T04:22:18","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/rare-rally-in-cyclical-stocks-largely-over-goldman-warns-after-etf-investors-favored-such-areas-of-the-market\/"},"modified":"2023-08-03T00:22:19","modified_gmt":"2023-08-03T04:22:19","slug":"rare-rally-in-cyclical-stocks-largely-over-goldman-warns-after-etf-investors-favored-such-areas-of-the-market","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=43775","title":{"rendered":"\u2018Rare\u2019 rally in cyclical stocks largely over, Goldman warns, after ETF investors  favored such areas of the market"},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0002356018\" role=\"document\">\n<p>Cyclical stocks have recently soared past those considered defensive in this year\u2019s market rally, as investors in exchange-traded funds last month showed a penchant for cyclical sectors.\u00a0\u00a0<\/p>\n<p>\u201cWe believe the bulk of this cyclical rally is behind us,\u201d Goldman Sachs Group analysts said in a portfolio strategy research note published Aug. 1 after the U.S. stock market\u2019s close. \u201cCyclical rotations as sharp as the one that began in May are rare.\u201d<\/p>\n<div class=\"paywall\">\n<p>U.S. cyclicals have outpaced defensives by a large margin since the start of May, rising 18%, and \u201cinvestors want to know if the rally can continue,\u201d the Goldman analysts said. Their note shows that defensive stocks rose just 2% over the same three-month period. They pointed to \u201cwide dispersion\u201d at the sector level.\u00a0<\/p>\n<p>Automobiles and components were the best-performing cyclical group excluding commodities during the three months through July, with a gain of 53%, while stocks in the area of consumer durables and apparel fell 1% for the worst performance in the category, according to the note.\u00a0<\/p>\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-inline\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>\u201cUltimately, the forward path of economic growth will determine whether cyclicals have more room to run,\u201d the analysts said. Their research found that \u201cwhen growth decelerated after sharp cyclical rallies, defensives began to outperform,\u201d with the analysts cautioning that Goldman\u2019s economists forecast that growth will decelerate to 1.6% in the third quarter on an annualized basis before slowing to 1.1% in the fourth quarter.<\/p>\n<p>\u201cThe recent cyclical rally seems to price an overly optimistic growth outlook of more than 2%,\u201d they wrote. \u201cThe Fed\u2019s battle with inflation puts a ceiling on economic growth.\u201d<\/p>\n<p>Recent signs of cooling inflation in the U.S. and low unemployment have led Goldman\u2019s economists to lower \u201ctheir subjective probability\u201d of a recession during the next 12 months to 20%, according to the note. But \u201cafter sharp cyclical rallies, meaningful improvement in economic data is required for cyclicals to continue outperforming in the median experience,\u201d the analysts said.\u00a0<\/p>\n<h4>ETF flows<\/h4>\n<p>Meanwhile, investors in equity ETFs favored cyclicals in July, as sector flows underscored their appetite for risk-taking in markets, according to Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors.<\/p>\n<p>Equity ETFs attracted around $120 billion over the past three months, \u201cthe highest three-month total in 2023 and a significant rebound from earlier in the year,\u201d he said in a research note tracking July flows into U.S.-listed exchange-traded funds.<\/p>\n<p>Sector ETFs last month saw $7.5 billion of inflows, the most since October, with cyclical areas being the most popular, according to Bartolini.\u00a0<\/p>\n<p>\u201cThe strong flows were led by cyclicals, as those market exposures took in almost $8 billion while defensives had outflows,\u201d he said. \u201cCyclicals have now outpaced defensives for two consecutive months.\u201d\u00a0<\/p>\n<p>Bartolini said \u201cthis is the first time that has occurred since the start of 2022,\u201d illustrating how investors have been \u201cmore willing to express risk recently.\u201d<\/p>\n<p>The financial sector mainly drove cyclical flows, \u201cas better-than-expected bank earnings repaired sentiment toward the industry after the mini-crisis earlier in the year,\u201d according to the State Street report. But \u201cevery cyclical sector had inflows in July,\u201d Bartolini wrote.<\/p>\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-inline\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>U.S. stocks were trading lower Wednesday afternoon, with the Dow Jones Industrial Average<br \/>\n        DJIA<br \/>\n       down 0.9% while the S&amp;P 500<br \/>\n        SPX<br \/>\n       fell 1.3% and the Nasdaq Composite<br \/>\n        COMP<br \/>\n       sank 2%, according to FactSet data, at last check.\u00a0<\/p>\n<p>Investors were digesting data Wednesday from payroll processor ADP that showed U.S. private-sector employment jumped in July more than anticipated. They were also assessing the decision by Fitch Ratings to downgrade the U.S.\u2019s credit rating to AA+, from AAA, because of the government\u2019s debt burden and an \u201cerosion of governance\u201d seen in repeated debt-limit standoffs.<\/p>\n<p>The S&amp;P 500\u2019s defensive sectors were outperforming the broad U.S. equity market in Wednesday\u2019s slump, with consumer staples<br \/>\n        XX:SP500.30<br \/>\n       and utilities<br \/>\n        XX:SP500.55<br \/>\n       showing small gains, FactSet data show, at last check. The rest of the index\u2019s total 11 sectors were trading down Wednesday afternoon.<\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/story\/rare-rally-in-cyclical-stocks-largely-over-goldman-warns-after-etf-investors-favored-such-areas-of-the-market-1c827689?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Cyclical stocks have recently soared past those considered defensive in this year\u2019s market rally, as investors in exchange-traded funds last month showed a penchant for cyclical sectors.\u00a0\u00a0 \u201cWe believe the bulk of this cyclical rally is behind us,\u201d Goldman Sachs Group analysts said in a portfolio strategy research note published Aug. 1 after the U.S. [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":41642,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-43775","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>\u2018Rare\u2019 rally in cyclical stocks largely over, Goldman warns, after ETF investors favored such areas of the market | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Cyclical stocks have recently soared past those considered defensive in this year\u2019s market rally, as investors in exchange-traded funds last month showed\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" 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