In its most recent ‘Weekly Kickstart’ note, Goldman Sachs has a page devoted to, what else, oil, and what specifically the firm is saying to clients regarding the potential impact on the economy and investing.
Here are the key bulletpoints, summarized by us:
- Investors should overweight allocation to energy stocks.
- The rise in oil prices is consistent with robust, demand. It will slow growth, but it’s not enough for the firm to start chopping its S&P earnings estimate.
- Global supply/demand is very tight. Inventories have not risen. Saudi Arabia is producing as much oil as it has in 30 years.
- It matters whether the surge in oil is demand or supply driven. So far it’s demand driven, which is good.
- When there’s a supply shock, defensive sectors outperform.
- Energy stocks remain cheap based on historical patterns with the price of oil.
- So far, there’s no reason to knock down S&P earnings estimates, in part because some sectors within the index will benefit significantly from higher prices. However, the firm will start cutting in a sustained move higher.
Meanwhile, this chart confirms the relationship between oil and “cyclical” stocks remains intact, a sure sign that for now, the price of oil is mostly growth driven.
Photo: Goldman Sachs
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