How you could justify August's stocks sell off
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U.S. futures flat
UBS shares up 3.7% after results
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HOW YOU COULD JUSTIFY AUGUST'S STOCKS SELL OFF
The broad consensus after the equity sell off earlier this month is that markets over-reacted to signs of macro economic weakness.
A Goldman Sachs note from late Tuesday, however, sets out of a couple of things that could complicate this conclusion.
To be fair, they too think the recent moves look overdone relative to the change in their baseline economic forecasts, but they do flag a couple of potential wrinkles.
The first is while their central growth forecasts are little changed, their economists have upped their expectations of probability of recession in the next 12 months from 15% to 25%.
So the recession that markets were briefly pricing still isn't likely, but it is, they think, more likely than it was a few months ago. And, after the rebound, markets are generally not priced for a recession.
Their second point is that markets could have been in the wrong place to begin with, as the market largely shrugged off data weakness in recent months, seeing it as opening room for the Fed to cut.
It's "possible that the market had already "overshot" the macro beforehand and become too optimistic on growth before the recent growth scare," write Goldman.
(Alun John)
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FOR WEDNESDAY'S EARLIER LIVE MARKETS POSTS
BETTER-THAN EXPECTED UK INFLATION NOT ENOUGH FOR SEPTEMBER CUT CLICK HERE
AND HAPPY AS THE SCREENS WERE GREEN CLICK HERE
COOLER-THAN-EXPECTED BRITISH INFLATION DATA BOOSTS THE MOOD CLICK HERE
MORNING BID: WELCOME TO THE CUTTING CLUB KIWIS CLICK HERE
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