Abby Joseph: US markets have no margin for error

“There is no margin for error in either equities or fixed income” after the surprising resilience of the US market this year, Abby Joseph Cohen, the long-serving strategist at Goldman Sachs, tells Barron’s.

Cohen has been known for consistent bullishness on stocks during most of her four-decade career at the investment bank, but sounds more cautious today. Much of the recent strength is simply due to the Federal Reserve “using monetary policy … to backstop the equity market”, she suggests. Investors are willing to look past a difficult year in the hope of better times by the end of 2021, but “valuation models suggest that the good news is already priced into the S&P500”.

Goldman Sachs’s analysts have a 12-month target of 3,100 for the S&P 500, so the index is now “bouncing around fair value”. US stocks “performed dramatically better” than the rest of the world over the last few months, which is in part due to a higher weighting to technology, but Europe and Japan may do better over the next six to 12 months.

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Cohen’s stock picks for the coming year include a firm that should grow strongly on the back of the Covid-19 crisis: Cintas, which provides services such as cleaning, sanitation and personal protective equipment. She also likes Daikin Industries and Trane Technologies, both of which operate in heating, ventilation and air conditioning. These should benefit from increased concerns about indoor air quality, as well as greater demand for cooling due to climate change.