“Opinions are still somewhat split on just what the Federal Reserve will decide to do at a two-day meeting that wraps up Thursday, but the general consensus seems to be that Chairman Ben Bernanke and his colleagues will announce a third round of asset purchases.
Goldman’s chief U.S. economist Jan Hatzius believes there is a better than 50% chance the Fed extends the duration of its low interest rate pledge and announces further asset purchases, largely due to Bernanke’s “self-described ‘grave concern’ about the labor market.”
Two previous rounds of quantitative easing provided a big lift for the stock market, particularly more risky, speculative names. In an equity research note Wednesday, Goldman Sachs tells clients that QE3 is likely to have the same effect.
“If history is a guide, lean cheap and towards growth,” Goldman advises. “[S]tocks with low valuations or high growth prospects … have historically outperformed around policy statements.”
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