Wall Street closes at a record for the first time since end of January
Investing.com -- UK stocks have moved sharply enough to already reflect near-recessionary conditions following the US-Iran conflict, with mid-cap valuations consistent with zero or slightly negative economic activity, Goldman Sachs said in a recent note.
The FTSE 250 was trading at the 15th percentile of its historical price-to-earnings range, while most global indices sat between the 80th and 95th percentiles, according to the brokerage. The brokerage’s economists cut their UK GDP Q4/Q4 growth forecast to 0.6% from 1.5% pre-conflict.
"UK stocks have been quick to discount and are arguably overly discounted in some cases," Goldman Sachs said, adding that FTSE 250 valuations were "likely consistent with activity running at zero or slightly negative."
The US-Iran two-week ceasefire announcement triggered a global equity bounce as energy prices pulled back from highs. Goldman Sachs’s commodities team expects energy flows through the Strait of Hormuz to begin recovering over the weekend, followed by a gradual one-month recovery in Persian Gulf exports to pre-war levels.
The brokerage nudged its Q2 Brent crude forecast down to $90 per barrel, keeping its 2026 Q3/Q4 forecast unchanged at $82/$80.
Energy’s contribution to annual UK headline inflation is forecast to swing from -0.1 percentage point in February to +0.3pp in March, rising further in April, according to Goldman Sachs.
The UK PMI output prices index rose in March, exceeding what prior relationships with oil and gas prices would have implied, with services pass-through running stronger than in the euro area.
UK cyclicals underperformed defensives more sharply than in the US or euro area, Goldman Sachs said. FTSE 350 retailers fell further than GfK UK Consumer Confidence data alone would imply.
UK domestic stocks, tracked via the GSSTUKDE basket, broke their historical relationship with GBP/USD over the past year, even as sterling appreciated, domestic names underperformed, bringing their relative performance against the FTSE 100 close to 2022 lows.
The FTSE 100 closed at 10,603 on April 9, with a 12-month forward P/E of 13.0 and a dividend yield of 3.3%, against the S&P 500’s forward P/E of 20.4, according to Goldman Sachs. The brokerage’s 12-month FTSE 100 price target stands at 10,800.
For gilt yields, Goldman Sachs said current moves in real estate and home builder stocks implied higher rates were already embedded in prices. "With weak economic growth, we expect gilt yields to moderate," the brokerage said. The UK 10-year gilt yield stood at 4.8%, with Goldman Sachs forecasting a decline to 4.4% over 12 months.
