Goldman Says Tech Valuations to Remain Intact if Rates Go Higher
Bloomberg
Published Jun 30, 2020 05:24AM ET
Updated Jun 30, 2020 06:54AM ET
Goldman Says Tech Valuations to Remain Intact if Rates Go Higher
(Bloomberg) -- If Treasury yields rise, technology stocks are likely to be able to maintain their valuations while some consumer stocks may struggle, according to Goldman Sachs Group Inc (NYSE:GS).
“Price/earnings multiples in sectors with strong secular growth, such as Info Tech, show little correlation with 10-year U.S. Treasury yields since 2011; their valuations can move higher in low-rate environments (because of their long duration) or high-rate environments (because of their high near-term growth expectations),” strategists led by Ryan Hammond wrote in a note June 29.
Growth expectations for the near-term become more important when rates rise in a low-rate environment, Goldman said, noting that the firm’s rates strategists see expansion expectations lifting 10-year U.S. Treasury yields by 45 basis points through year-end. That boosts cyclical shares, insulates long-duration equities with high growth, and weighs on defensive stocks.
Goldman sees net upside risk to S&P 500 multiples and prices if monetary policy remains loose and growth expectations improve, which it envisions as the most likely scenario.
“High multiples of Software & Services appear supported by fundamentals, while Household & Personal Products valuations are stretched,” the strategists said.
Goldman also looked at U.S. stocks’ valuations based on factors including their equity duration, near-term growth expectations and margins. Those trading at the biggest discounts to their modeled valuation include Bristol-Myers Squibb (NYSE:BMY) Co., Cigna Corp (NYSE:CI). and Western Digital Corp (NASDAQ:WDC)., they said. Those trading richest versus the models included Expedia (NASDAQ:EXPE) Group Inc., Abiomed (NASDAQ:ABMD) Corp. and Netflix Inc (NASDAQ:NFLX)., they said.
©2020 Bloomberg L.P.
Get The News You Want
Written By: Bloomberg
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.