Goldman Sachs drops three-month rating on US stocks to underweight

Analysts have dropped their three-month rating on US equities to underweight, citing poor earnings growth.

Goldman Sachs Group analysts dropped their rating on US stocks to “underweight” for the next three months, citing a reversal of investor positioning and the need for a better economic outlook.

The lender said in a Sunday report that it is still “neutral” for the next 12 months and remains “overweight” cash.

“Given equities remain expensive and earnings growth is poor, in our view equities are now just at the upper end of their ‘fat and flat’ range,” said the analysts, led by Christian Mueller-Glissmann.

The researchers also said that the bank’s measure of investor risk appetite had been negative, but had since become more neutral, which suggests, “the market is more vulnerable to growth and policy disappointments.”

Since stocks slid after British voters chose to leave the European Union in June, the benchmarks have rebounded based on a search for yield and the expectation that central banks would increase their easing policies. Those drivers may be getting weaker, though, according to the bank’s analysts.

“We will need better macro fundamentals or stimulus to keep the risk rally going, but market expectations are already dovish and growth pick-up should take time,” they say.

Dow Jones