Goldman Joins JPM On The Bearish Side, But Gartman "Remains Bullish Of Stock Prices"

First, it was Bank of America with 4 reasons why the rally in stocks is ending, then earlier today, JPMorgan presented 6 "red flags" why investors should quietly start offloading risk exposure.

Now it's Goldman's turn to warn that "bad news is no longer good news" and that "from here we forecast muted returns for equity and think it will be difficult for the market to decouple meaningfully from the macro data for an extended period of time."

What concerns Goldman, is what JPM also highlighted as its top risk: the sudden collapse in the Citi Economic Surprise Index, which in recent weeks has plunged from nearly all time highs to negative, and warned that stocks could see as much as 10% downside absent a sharp reversal in the CESI.

"The Citigroup Economic Surprise Index rolled over sharply recently and is now in negative territory. We note that the weakness was partly due to the CPI miss last month, which could be a one-off, but most recently the US manufacturing datapoints have weakened, as well. If the strong correlation between S&P500 and CESI holds, stocks could see almost 10%+ downside."

JPM also flagged that "equites typically perform strongly after ISM moves above 56 – this has played out to script, and ISM has now rolled over."

There were various other considerations listed by JPM, which readers can find in our earlier post, however the jist is clear: investors are once again not reacting to negative news or deteriorating macro data.

Which brings us to Goldman's Ian Wright, who late this morning issued a note that was a virtual carbon copy of JPM's concern titled "This week's focus: ISM manufacturing down, S&P 500 up" in which he argues that after weeks of ignoring negative data, it is now time to pay the piper, based on the abovementioned two premises - rolling over macro data, and a pullback in the ISM.

His full thoughts:

The ISM, Q1 GDP and core PCE in the US recently came in below consensus and GS expectations, and the China PMI disappointed as well. Although the ISM remains above 50, it fell for the second straight month, by 2.4 points to 54.8, with the new orders component falling significantly. However, the S&P 500 was actually up 17 bps on the day the ISM fell, leading to the question of whether investors should trust the positive market performance or the negative macro surprise as an indicator of where the market may go from here.


From here we forecast muted returns for equity and think it will be difficult for the market to decouple meaningfully from the macro data for an extended period of time. In March the US market actually faded somewhat as policy optimism did as well, even though macro surprises were generally positive during that period. But now macro surprises have closed the gap (Exhibit 1). We think further positive macro surprises will likely be needed if the market is to perform well going forward.


We have written previously that as the ISM slows down returns are usually lower - but not necessarily negative - and volatility usually picks up eventually as concerns about growth materialise, but that this will likely take time.

And after concluding that "equities have digested worse macro data very well after lagging better data in March", Wright asks whether "bad news is good news?

For the Goldman strategist, as for JPM, the answer is "not any longer."

What about Dennis Gartman? This is what he said in his morning note discussing the recent move in the Dow:

THE DOW: This is NOT the Action of a Top! Tops are made in violence, not in tepid, modest price ranges such as the ranges of the past five or so trading sessions. This is instead the action of a consolidation and so higher prices are still the most likely path of the least resistance.


... we remain bullish of stock prices generally and continue to recommend owning stocks rather than being neutral or short of them. One needn’t be wild-eyed bullish for that might prove ill-advised given that our favorite indicator of the market’s collective psychological foundation… the CNN Fear & Greed Index… has gone from having been quite dramatically over-sold several weeks ago to utter neutrality presently given that the Index has closed for the past several days at near perfect “neutrality.” However, if the past is prologue to the future, this index will eventually make its way toward excessive optimism where the public has thrown caution to the proverbial investment winds and at that point we’ll hopefully have enough investment “savvy” to move to the sidelines. Time only shall tell.

So Goldman bearish and Gartman bullish. We look forward to the tiebreaker.


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