In a recent report, Goldman Sachs Group Inc analysts gave its short-term and long-term take on commodity markets.
While analysts believe the worst may not be over for falling commodity prices, there is a light at the end of the tunnel in the longer-term.
2015 Outlook
Analysts believe that near-term risk in commodity markets remains to the downside, despite the plunge that commodities have already taken in the past several months. The report forecasts WTI oil prices near $40 per barrel throughout the first half of 2015.
Analysts believe that low prices will slow supply growth and stability will return to the global oil market by 2016 once the current supply glut has been eliminated.
Uncertain Recovery Timing
Goldman is forecasting $65 per barrel for WTI and $70 per barrel for Brent in 2016. Analysts note that the timing of a recovery in oil is uncertain and emphasize caution and patience before taking a positive stance on commodities.
Asset Allocation Balance
Risk reduction by diversifying across asset classes has been difficult as of late due to high cross-asset correlations. Analysts believe the global fears of deflation and stagnant economic growth resulting from plunging oil prices are to blame for the historically high cross-correlation.
In their recommended asset allocation, Goldman downgraded commodities from Neutral to Underweight on a three-month time horizon and upgraded commodities from Neutral to Overweight on a 12-month horizon.
Goldman is Overweight on equities in both the three-month and twelve-month time horizon. Analysts are Underweight on both five-year and ten-year bonds in the long-term and neutral on cash.
Read this article and all my other articles for free on Benzinga by clicking here
Want to learn more about the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
