Goldman’s Mea Culpa

Goldman Sachs dissed financial and consumer sectors today with a major downgrade…exactly seven weeks after upping their forecast on each. They just admitted being wrong about their call, and have reversed course. Since the May 5th upgrade, the financial sector has declined about -18% and the consumer discretionary sector down -8%. This is in contrast to the S&P 500’s loss of -6% in the same period.But guess what? JP Morgan is taking the other side of the trade! Despite ‘horrific’ performance in the financial sector, JP Morgan equity strategist Thomas Lee thinks financials may outperform, much like they did off the recession lows in 1990, 2001, and 2004.

What strikes me in a good way about the Goldman call is that they admit to making a mistake. How many times in the investment community do you hear folks admitting they are wrong? Almost never. Then on the other hand, the JP Morgan bloke puts out a decent thesis about why one should maintain exposure to financials. Two extremely bright individuals having exactly opposite opinions, this is what makes a market.

At some point, there will be a shift out of energy, materials, utilities, and technology; the exact sectors the Goldman fella tells people to over-weight. Doesn’t it seem like Wall Street & Main Street is making these sectors a little top heavy? Pretty soon it’ll be the only game in town, and that’s about when it will be fully priced. Hopefully we’ll all know when to get out!

Things will probably heat up Wed afternoon after the Fed announcement, but fairly quiet until then.

Have a super week everyone!