Following last week's hotter than expected CPI print, the market now fully discounts a hike in March, although as Goldman adds, not nearly enough, and the "hawkish" bank expects "further repricing of Fed hike expectations and term premium will be needed both this year and next."
Commenting on recent moves, Goldman's Ian Wright notes that amid the bond sell-off and recent correction, "we continue to be asked how high bond yields can go and how well equities can digest them." In response, the strategist points out what we discussed yesterday, namely that Goldman recently raised its bond yield forecasts by around 20bps, across regions, and now expect US 10-year Treasuries to reach 3.25% by 2018YE.
Waright adds that even though his teams expects this increase to be gradual "and see little value in other asset classes", he remains overweight equity into year-end amid expectations that "goldilocks" will gradually fade, "but do not expect a sharp fall in growth expectations."
Here Goldman highlights something notable: while CFTC US equity long positioning had its largest weekly decrease ever and clients may be more cautious now compared with January...
... based on Goldman's conversations with clients, most investors continue to be constructive risk and short duration. As a result, Goldman's risk appetite indicator remains relatively high...
... and both Investor Intelligence and AAII sentiment measures are elevated after having somewhat receded (Exhibits 2 and 3).