Goldman Sachs Warns ‘Peak Growth' May Spell Pain for U.S. Stocks

What goes up must come down.

That’s the glass-half-empty view of David Kostin, chief U.S. equity strategist at Goldman Sachs Group Inc., who warns that the plus-60 reading of the ISM Manufacturing Purchasing Managers’ Index “typically marks peak growth” and has traditionally been followed by a dip in U.S. equities.

The S&P 500 Index has averaged negative returns on a three-month and six-month basis during the eight occasions since 1980 that the closely watched gauge of U.S. factory activity has exceeded 60.

Goldman Sachs

“An environment of synchronized global growth acceleration today raises the risk of coordinated global slowdown tomorrow,” Kostin cautioned in an Oct. 20 note to clients.

Slowing economic growth would support the outperformance of growth stocks over value stocks, says Goldman.

The silver lining for investors who plan to hold on despite this sell signal is that average returns in the following 12 months have been markedly positive. Kostin also highlights factors -- including the high likelihood that any equity weakness would be met with a wave of stock buybacks -- as reasons to believe any near-term downside may be limited.

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