International investment bank Goldman Sachs has urged investors to buy commodities and worry about a later recession. Analysts at the firm see commodities as “the best asset class to own during the later cycle when demand continues to outstrip supply.” Meanwhile, “equities are likely to suffer as inflation rises and the Fed is more likely to be surprised by the hawkish side,” Goldman said.
Goldman Sachs advice: buy stocks now
Global investment bank Goldman Sachs advised investors to buy commodities. “Our economists view the risk of a recession outside of Europe in the next 12 months as relatively low,” Goldman said in a note titled “Buy Commodities Now, Worry About the Recession Later” published Monday. The company’s analysts, including Sabine Shells, Jeffrey Currie and Damien Curvally, explained:
If oil is the last resort in an era of severe energy shortages, we believe that returns in the entire oil portfolio provide an attractive entry point for long-term investments.
US Federal Reserve Chairman Jerome Powell said last week: “We are taking strong and swift action to better match supply with demand and keep inflation at bay.” We will continue until we are sure the job will be done.
Also, European Central Bank board member Isabelle Schnabel said on Saturday that central banks around the world could lose public confidence and must act aggressively to prevent inflation, even if it drags their economies into recession.
“From an asset perspective, as inflation continues to rise and the Fed is more likely to surprise on the hawkish side,” Goldman analysts explained.
Commodities, on the other hand, are the best asset class to own during the late-cycle phase when demand outstrips supply.
The back-cycle phase typically involves rising inflation and an economy that is experiencing rapid economic growth.
Goldman Sachs also warned: “We believe the macro landscape remains challenging and the US dollar may rise in the short term.”
Currie, who heads commodities research at Goldman Sachs, believes the recession is a natural part of a long commodity supercycle. He told Reuters in November last year: “We expect a structural bull market in commodities similar to what we saw in the 2000s or 1970s.
The analyst told CNBC in June that we are at the beginning of a commodity supercycle. “This is the first innings of a commodity supercycle – not just oil and gas, but metals, mining, agriculture – because the sector has been hit by low investment for over a decade,” he commented.
Do you agree with Goldman Sachs about commodities? Let us know in the comments section below.
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