Chief Equity Strategist at Goldman Sachs, Peter Oppenheimer, quoted “Alice and Wonderland” regarding the markets, “Curiouser and Curiouser, ” reports Bloomberg. In 2012, he mapped out three scenarios for the markets, each one stranger than the other. The curious aspect is an environment of low interest rates but little growth. Even stranger is that equities and bonds have both performed well, and weak economies have shown strength.
One scenario is secular stagnation, in which growth is sluggish and inflation is below pre-crisis levels, with weaker returns for equities than bonds. The second is a new normal, in which Chinese consumption and the oil boom in America will create prosperity. The third is what Oppenheimer calls a “Great Moderation, ” in which growth rises but not so much as to create inflation and interest rates rise gradually. The last scenario would allow the bull market to continue. However, bond and credit yields would go down, creating a bubble that will explode with rising interest rates. Goldman Sachs sees continued strength in U.S. stocks, given the lack of reliance on exports. However, Oppenheimer is concerned about increasing stagnation in Europe. This might lead to a shift into bonds.