Original title: "scaling back panic" repeat?Goldman Sachs GroupWarning: the Fed's cutback in bond purchases may lead to a short-term sell-off in US stocks

Source: FX168

Goldman Sachs Group, a well-known investment bank, believes that the Federal Reserve (FED) hinted that its intention to scale back its asset purchase program could lead to a short-term sell-off in the US stock market.

Goldman Sachs Group said the Fed was likely to lay the groundwork for scaling back its asset purchases at its September meeting and then press ahead with the plan in early 2022. Goldman Sachs Group expects the Fed to cut asset purchases of $10 billion in treasury bonds and $5 billion in mortgage-backed securities every month.

In March 2020, the Fed cut interest rates to near zero and promised to buy unlimited assets to support the economy through the COVID-19 pandemic.

Since June 2020, the Fed has bought a total of $120 billion a month in Treasuries and mortgage securities.

"the reduction in bond purchases sends an important signal to the market about the timing of start-up," a team led by David Kostin, chief US equity strategist at Goldman Sachs Group, wrote in a report.

Goldman Sachs Group used the 2013 taper tantrum as a model to predict what might happen this time.

At the time, the s & p 500 fell 5% in five days, the yield on the benchmark 10-year u.s. bond climbed 40 basis points to 2.6%, and market defensive assets outperformed risky assets.

Two months later, the s & p 500 rebounded by about 5%, 26% above its "panic reduction" low.

Goldman Sachs Group, a strategist, said the size of the Fed's balance sheet and its rate of change had a "different impact" on stock market performance, with the former more important to returns.

Goldman Sachs Group now expects the S & P to fall to 4300 in the next six months, but hit the target of 4450 in the next 12 months.

As the US stock market enters what is usually the weakest two months of the year, Wall Street is increasingly worried about a possible correction.

(photo Source: Goldman Sachs Group)

The s & p 500 has not experienced a correction, or at least a 10 per cent decline, since the sell-off that began in august and ended in October. This pullback usually occurs at least once a year.

Wall Street strategists worry that the recent emergence of the Delta mutation virus and slowing economic growth will be a disadvantage in the coming months.

"there are enough red flags that prudent investors have to start thinking about risk reduction," said Scott Minerd, global chief investment officer at Guggenheim Partners.