Goldman continues to roll out its top trades for 2013.
Among the ones it’s revealed so far: Buy Spanish debt, and short the Aussie Dollar against the Norwegian Kroner.
This week it unveiled its first equity recommendation: Buy large-cap US banks.
These have definitely been among the most hated companies for a long time, but in 2012 they begun their reversal.
This recommendation is based on several features of our 2013 outlook: (1) a fairly supportive view of the economic and equity market landscape for 2013, particularly in the US; (2) US monetary policy that remains extremely accommodative, focused on MBS purchases and the transmission of its policy through the housing channel; (3) continued improvement in the housing sector in terms of activity and prices, building on advances already seen in 2012; (4) transmission of the housing sector strength into large cap US banks; and (5) the fact that financials have, thus far, lagged improvements seen in other housing-related equities over the last several months.
The rest of the note really goes into the housing aspect: This is key. If Housing comes back, this will create all kinds of beneficial side effects, which should benefit large banks.
Goldman isn’t the only one who likes the bank comeback trade. In their 2013 forecast, SocGen also said that the hate trade had gone way too far, and was due to go the other way. The decline of Apple and the recent rally in big banks corroborates this.