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Aug. 6, 2021, 10:22 a.m. EDT

Here’s how Goldman Sachs is advising private-wealth clients in ‘confusing’ market

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By Christine Idzelis

Even professional investors are grappling with how to read markets in the pandemic.

The “striking” decline in the 10-year Treasury yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +2.68% since May is a bit “confusing,” said Sara Naison-Tarajano, the global head of capital markets for Goldman Sachs Group’s private wealth management division, in an interview.

Some investors worry the drop may be signaling a looming correction for equities that’s linked to concerns economic growth will slow as the pandemic drags on, said Naison-Tarajano, who also serves as global head of Goldman’s Apex family office business.

“Is the rate market telling us something that the equity market isn’t aware of yet?” she said. “We’re going to watch it very closely,” said Naison-Tarajano, though at this point, she’s not sure the recent slide in the 10-Year Treasury yield should be of “extreme concern” for clients.

“We are advising clients to certainly keep their holdings in equities,” said Naison-Tarajano. “If you had panicked and sold” equities over the past year plus, she said, “it’s impossible to make up the returns that we’ve experienced.”

Major U.S. stock indexes are trading near record highs and haven’t seen a big pullback in months. The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.91% on Tuesday rose to its 42nd record close of 2021, according to Dow Jones Market Data. The index has gained almost 18% this year, based on Thursday afternoon trading, FactSet data show, at last check.

But “stocks aren’t performing as well as you might expect on the back of some really good earnings” reported for the second-quarter, said Naison-Tarajano, suggesting concerns over the spread of the more contagious delta variant of the coronavirus may be dampening sentiment.

While “relatively optimistic on equity markets” in advising clients to stay invested, Naison-Tarajano said she is not recommending adding a lot more exposure.

“One thing I would be wary of right now is leverage with equity markets,” she said. With the stock market up significantly this year, and uncertainty surrounding rates, she said “we just don’t want anyone to be in a position where they’re going to be a forced seller on a correction.” 

Buying dips in U.S. stocks, on the other hand, is the type of opportunity “we definitely would look for,” according to Naison-Tarajano. She said that she recommends buying dips in mega-cap growth stocks that are benefiting from secular digital trends, as well as “oversold reflation trades.” 

Read: Is the reflation trade over? What stock-market investors need to watch

Goldman’s private-wealth clients tend to have a long-term view of their holdings, according to Naison-Tarajano, who said she guides them with a thematic approach to investing. 

“Our clients tend to be pretty overweight equities and with rates this low I’m not sure there’s really anywhere else to go,” she said. Given the market has been “quite confusing” following a “volatile” 2020, she added, “we do see relatively high cash balances.”

That’s generally good for when markets dislocate, as it sets up clients to be opportunistic, according to Naison-Tarajano, who said she considers U.S. Treasurys to be cash equivalents. That’s because Treasurys have a stable net asset value and clients can trade out of them on a daily basis, she explained.

Puzzling drop in yields

The yield on the 10-year Treasury note was trading around 1.2% Thursday afternoon, tumbling from about 1.7% as recently as May 12, FactSet data show. Federal Reserve Vice Chair Richard Clarida said Wednesday he was surprised by the size of the decline in bond yields since the spring, MarketWatch reported.

Yields are low despite strong economic growth and surges in inflation. Fed Chair Jerome Powell has repeatedly described the rise in the cost of living as transient , saying it’s linked to the rebound from the pandemic. 

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