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According to Goldman Sachs analyst Cecilia Mariotti, there’s a significant improvement in global manufacturing activity, which historically tends to have a positive impact on the market. Mariotti notes a promising alignment between robust growth levels in the service sector and an uptick in global manufacturing activities, with non-U.S. manufacturing activities reaching parity with those in the U.S. This convergence signals a favorable environment for risky assets, potentially leading to an extension of the market rally into previously lagging sectors.
Recent macroeconomic data also indicate solid U.S. growth, a global increase in activity, and a moderation in inflation, further boosting investor confidence. This has resulted in a notable rise in risk-oriented assets over safe-haven counterparts. Mariotti highlights the surge in regional equity markets, along with significant increases in Bitcoin and gold prices, as evidence of broad investor optimism. Surprisingly, this optimism has propelled an equity rally since the last quarter of 2023, surpassing typical gains associated with historical manufacturing recoveries.
However, Mariotti notes that the market rally hasn’t been evenly distributed across all sectors, suggesting a selective and technology-driven market environment. The “Magnificent Seven,” tracked by the Roundhill Magnificent Seven ETF (NASDAQ:MAGS), has played a crucial role in driving this equity market upsurge.
Looking ahead, Mariotti suggests that a confirmation of continued activity improvement could trigger an expansion of the ongoing rally. Notably, there’s a diminishing performance disparity between the Invesco S&P 500 Equal Weight ETF (NYSE:RSP) and the cap-weighted SPDR S&P 500 ETF Trust (NYSE:SPY). This scenario is expected to disproportionately affect specific sectors, particularly infrastructure and real estate, which may require more pronounced rate relief to excel in a reflationary landscape.
Conversely, copper is identified as a potential high performer, supported by historical trends of strong returns amid increasing activity levels. In Mariotti’s view, markets are likely to oscillate between “Goldilocks” and “Reflation flirtation” over the near term.