Goldman Sachs expects this bout of market volatility to pass as concerns about the economy are eased by solid data, giving "stock pickers" an opportunity to pick up shares of solid companies unfairly beaten up in the past week. "If economic fears continue to fade and the market becomes more micro-driven in coming months, then the recent sell-off represents an attractive opportunity to buy stocks with healthy fundamentals at valuation discounts," wrote Goldman chief U.S.
equity strategist David Kostin and team in a note to clients Friday. The S & P 500 was off by more than 8% from an all-time high reached in July at last week's lows, as investors evaluated a disappointing July jobs report and other weak data. The benchmark battled back to end last week and currently sits about 6% from its record.
Goldman screened for stocks that have seen their earnings estimates ratchet up since the start of the third quarter, but posted weak relative returns during the last week. Notable names on the list include Micron and Amazon , as well as some under-the-radar names like Advanced Drainage Systems . Goldman noted that cyclical stocks underperformed defensive names last week, showing that "macro" is driving equity returns.
Once investors' focus returns to normal, stocks with strong fundamentals and valuations like those on this list will start to benefit, the firm argues. "While the next jobs report will not be released until Sept. 6th, investors will focus on jobless claims every Thursday, retail sales and WMT earnings next Thursday, and the labor components of Fed surveys later this month," stated the note.
"If the data confirm our economists' optimistic view, investors will likely pivot back to focusing on alpha opportunities rather than market betas.".
