Bullish indicating open at $55-$60, IPO prices at $37
Investing.com -- Goldman Sachs strategists updated their U.S. sector model and are now recommending a balanced allocation that includes Software (ETR:SOWGn) & Services, Media & Entertainment, and Materials as key overweight positions for the next six months.
“We update our sector model, which estimates the probability that an equal-weighted sector outperforms the equal-weight S&P 500 by 5 pp or more during the next 6 months,” the analysts wrote.
While the model continues to recommend Software & Services, Goldman has added Media & Entertainment and Materials, while dropping Consumer Staples.
The bank noted that investor preferences should reflect a neutral economic outlook.
“The equity market appears to be pricing an optimistic outlook for the U.S. economy, but we believe there are risks in both directions and investors should not be clearly cyclical or defensive in their sector allocation,” wrote Goldman analysts.
Software & Services and Media & Entertainment stood out due to their attractive growth profiles. “Consensus long-term growth expectations are among the strongest in Software & Services (14%) and Media & Entertainment (14%),” Goldman said, adding that these sectors typically attract investors when broader economic growth is modest.
Within defensives, Utilities and Real Estate were the top picks, supported by the expectation of modestly lower bond yields. On the cyclical side, Materials is favored over Energy “on the expectation of lower oil prices.”
Meanwhile, Goldman flagged Industrials as unattractive due to lofty valuations.
They explained: “Valuations are elevated across most industries in the sector and our model suggests it has the lowest odds of substantial outperformance during the next 6 months.”
Consumer Staples and Health Care were also viewed less favorably, falling “just short of recommendations in our model.”