Low Equity Returns for Rest of 2019 Could Spur Activity in High Yield

U.S. equities rallied in 2019, but for investors who are just starting to get back into the stock market after a tumultuous year-end to 2018 could have missed the meat of the move, according to Goldman Sachs. As such, lower equity returns for the rest of 2019 could translate to more interest in high-yield options.

If the U.S. capital markets are to continue its rally to start 2019, it may have to come from other sources as Goldman Sachs is forecasting lower returns for the rest of the year.

“The rally we expected has happened swiftly, and given this we see relatively modest returns on equities from here,” Goldman analyst Sharon Bell said in a note to clients Tuesday.

The early rally came as U.S. equities finished their worst year in over a decade. The Dow fell 5.6 percent, while the S&P 500 lost 6.2 percent and the Nasdaq Composite fell 4 percent.

Through Monday’s close, the Dow is up 8.2 percent, the Nasdaq 10.73 percent and the S&P 500 8.7 percent. However, flatter and more range-bound market movements could be in store through the rest of 2019.

“While we saw a bounce in equity markets in 2019, we also argued that this would be followed by the resumption of a ‘flat & skinny’ trading range, with relatively low equity returns,” said Bell.

Furthermore, Bell is suggesting that an “idiosyncratic approach” may be a more plausible option as opposed to defensive or cyclical plays in the stock market. One option could in the high-yield fixed income space.