Goldman Sachs downgrades stocks to neutral for short term

Fri Jul 25, 2014 4:36pm EDT

A Goldman Sachs sign is seen above the floor of the New York Stock Exchange shortly after the opening bell in the Manhattan borough of New York January 24, 2014.  REUTERS/Lucas Jackson

A Goldman Sachs sign is seen above the floor of the New York Stock Exchange shortly after the opening bell in the Manhattan borough of New York January 24, 2014.

Credit: Reuters/Lucas Jackson

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(Reuters) - Goldman Sachs downgraded its global equities allocation to neutral on a short-term basis on Friday, even though the brokerage remains overweight stocks for the longer term.

The firm said in a research note it is worried that a rise in rates will drive stocks lower over the next three months, adding that "we also expect the general pace of returns to slow compared to what we have seen in the last couple of years."

In its note, Goldman said the global acceleration in economic growth is "largely behind us and geopolitical risks are elevated." Despite these thoughts, they still said equities are the most attractive class on a 12-month horizon "by a wide margin."

Equity markets worldwide have rallied steadily through the year. The MSCI All-World Index hit a record in early July, having gained more than 5 percent in 2014. Goldman noted that the gap between dividend yields and government bond yields remains high, and that measure suggests more outperformance by the equity market.

Dividing the world up by regions, Goldman is overweight in Europe and Japan and underweight in the United States. When looking at specific sectors, the firm is high on growth industries - it has overweight ratings for technology stocks in the United States, Europe, Japan and Asia.

(Reporting by David Gaffen; Editing by Ross Colvin and Diane Craft)

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