Narrow breadth in S&P 500 is bad sign - Goldman Sachs

Omkar Godbole FXStreet Contributor

While the US stocks have recovered significantly from the lows seen in March, they are still not out of the woods, as the breadth of the move has been quite narrow with large caps leading outperforming by leaps and bounds.

"The S&P 500 now trades just 17% below its all-time high, however, the median S&P 500 constituent trades 28% below its record high," said Goldman Sachs' chief euity strategist David Kostin, according to Bloomberg.

Kostin added that narrow rallies lead to large drawdowns as the handful of market leaders ultimately fail to generate enough fundamental earnings strength to justify elevated valuations.

A fresh sell-off in stocks, if any, will likely bode well for traditional safe havens like the Japanese yen, Swiss franc, gold and US treasuries. The Federal Reserve is already running an unprecedented open-ended asset purchasing program. As a result, markets are unlikely to see a March-like liquidity crisis and a global dash for cash, mainly US dollars.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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