Goldman Sachs senior strategist warns stocks could see ‘considerable’ pre-election downside that isn’t being factored into models

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Abby Joseph Cohen


  • Goldman Sachs’ Abby Joseph Cohen told Bloomberg on Thursday that markets could see “considerable downside” before the election due to factors that financial models aren’t picking up. 
  • These factors include the outcome of the election and what Congress and the president will do next before election day, Cohen said. 
  • The senior investment strategist added that the market is vulnerable to volatility and disappointment given the”wide gaps” in the relative valuation of stocks.

Goldman Sachs’ Abby Joseph Cohen told Bloomberg on Thursday that markets could soon see “considerable downside” based on factors that financial models cannot predict.

What Congress will do next, what the president will say, and how the election will end cannot be forecasted by modeling, the senior investment strategist said.

“Those of us who have lived our professional lives really focusing in on the math, I think should feel very humble right now,” Cohen said. “Because what we recognize is that the models may not be able to properly reflect all of the volatility not just in the markets, but in the economy, in policy, and of course in investor sentiment.”

Read more: Warren Buffett’s Berkshire Hathaway shocked investors with its Snowflake and Barrick Gold bets. A veteran shareholder explains why they might be part of a new strategy

While Cohen said that it’s not unusual for volatility to rise before an election, there’s also been “erratic movement” with regard to fiscal policy. Stocks quickly sold off on Tuesday after Trump tweeted that negotiations for the next stimulus plan would be halted until the election. 

The famed strategist also said there are “wide gaps” in the relative valuation of stocks. Just a handful of stocks drove the market’s record rally following its March lows. Cohen said this can make the market more volatile, and

Microchip Technology Stock To See Further Downside?

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Microchip Technology stock (NASDAQ: MCHP) is down around 5% since the beginning of this year, but at the current price of around $98 per share, we believe that Microchip stock could see more downside.

Why is that? Our belief stems from the fact that MCHP stock has jumped 1.4x from the low seen at the end of 2018, around 1.5 years ago. Our dashboard What Factors Drove 39% Change In Microchip Technology Stock Between 2018 And Now? provides the key numbers behind our thinking, and we explain more below.

Microchip Technology is a manufacturer of microcontroller and analog integrated circuits used in a wide variety of semiconductor applications. The stock rise over the past year and a half came due to a 32% growth in revenue, which despite a 2% rise in the outstanding share count, led to a 29% jump in revenue per share.

Microchip’s P/S ratio rose from 4.1x in 2018 to 4.6x in 2019, but has since dropped to 4.4x currently. Further, given the volatility of the current situation, there is significant possible downside risk for Microchip’s multiple, especially when compared with previous years: 4x in 2015, and 4.1x as recently as late 2018.

So what’s the likely trigger and timing to this downside?

The global spread of Coronavirus has meant there is much lower demand for computing and hardware devices across all markets, which has driven down demand for MCHP’s products. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. This is evident from Microchip’s Q1 ’21 results in August, where revenue came in at