With just one trading session left in 2023, and with the S&P set to close up 25% for the year and - most likely - at new all time highs, Goldman's trading desk (never to be confused with the bank's sellside research, who never put their money where their mouth is and in fact merely draw clients to take the opposite side of the trading desk), likes owning beaten-down cyclicals given the bank's belief that recession risk is significantly lower than feared. As discussed recently, Goldman economists assign just a 15% probability the US enters a recession in 2024 vs Bloomberg’s 50% consensus.
As Goldman trader John Flood writes, on Dec 13 we witnessed a dovish pivot by the fed in what we believe is still an expansionary environment. He sees this as a bullish recipe for stocks, specifically regional banks and energy names.
Yet markets and traders do not share the sentiment: the following charts from Goldman Prime Brokerage point to the magnitude of supply (i.e. selling) observed cyclicals this year. Additionally, the current L/S ratio in banks is still hovering near 8+ year lows.
