Goldman Sachs declares 2024 the 'year of the stock picker'

Goldman Sachs has released a report featuring their top 25 tactical trades, dubbing 2024 as "the year of the stock picker." To provide deeper insights into this forecast, Goldman Sachs head of derivatives research John Marshall joins Market Domination.

Marshall highlights a key theme currently dominating the markets: "extremely low correlation between stocks." This correlation, he notes, is nearing an all-time low, creating an intriguing market dynamic. The result is a disparity between the market volatility index (^VIX) — which is at an unusually low level in an election year — and the level of "earnings day moves for single stocks of 4.8%" at a 14-year high.

Explaining the methodology behind Goldman Sachs' top 25 tactical trades list, Marshall emphasizes the role of analysts.

"Analysts have a powerful amount of information in their estimates," he states, pointing out a notable trend: when estimates for a stock are above consensus, that stock tends to rise, and conversely when estimates fall below consensus, the stock in turn declines.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Angel Smith

Video transcript

Goldman Sachs releasing a new report about its top 25 tactical trades earning season.

A note saying that 2024 is gonna be known as the year of the stock picker.

We have one of the authors behind that report joining us right now, John Marshall, head of derivatives research, John, it's good to see you.

Um maybe just start actually big big picture question I have for you John because I know you're tracking options, you know options positioning as we head into the kind of the thick nap earnings season, John, I was just curious if if you've noticed, have there been any kind of big big changes, new changes, John that you, you would call out in terms of just trends and themes?

Yeah, thank you very much for having me.

I'd say there's two really big themes that are happening right now.

The first is extremely low correlation between stocks correlation.

You know, people talk about the mag seven and how much they dislocated from the other 493 stocks in the S and P 500.

But when you look at all 500 you calculate the correlation, it's been only one third the level of normal and this is near an all time low.

And options markets are telling us that we're gonna remain in this low correlation environment for the rest of the year.

What the disparity that that's causing is we've got a vix that's at 12, which is at an extremely low level and we've got earnings day moves for single stocks of 4.8% which is at a 14 high.

So it's a very uncorrelated market that we're in.

And that's why we're so focused on picking stocks because the bottom line is, it really pays off to be right in this market when you're surrounding earnings.

So, what you guys went and did, you looked at your most out of consensus calls from your big team there of, um, sell side analysts and I picked some interesting ones.

Chipotle's on your list.

Starbucks N phase energy on the list.

Bank of New York Mellon, which reported, um, today a firm.

So it's a pretty diverse list here.

Microsoft's on the list as well.

Ho how do you go about figuring out which are the most out of consensus calls and then what's the best way for people to play these guys?

Yeah, it's a great question.

And it's something that we've honed for years.

We've published this list in exactly the same format for the last 12 years each quarter, uh, talking with our analysts, analyzing their estimates relative to consensus and what we found with all of our studies is that analysts have a powerful amount of information in their estimates.

And when our analysts are significantly above consensus or out of consensus, the stocks tend to rise on average and when they're below consensus, they tend to fall.

And so we're very focused on that sort of trend.

As we are doing this analysis, we start out with 1000 stocks under coverage.

We whittle it down with quantitative methods to get it down to about 500 then even further to get to this list of 25 by speaking with our analysts and understanding the drivers behind their views.