Goldman's global stock chief tells us why stocks are rising despite protests raging across America and what could trigger a correction

• Goldman Sachs' top global equity strategist, Peter Oppenheimer, told Business Insider that the "size and scale" of the economic stimulus and the slowdown in coronavirus infection rates were supporting the market rally.
• But Oppenheimer cautioned that big political events could trigger a market correction.
• "It's also an election year in the US, and that seems to have a big bearing this year," Oppenheimer said.

Global stocks continued their rally this week — aside from a pause on Thursday — despite mass protests across the US.

An equity strategist told Business Insider that while this rally was being driven by optimism about large stimulus packages and a slowdown in coronavirus infection rates, big political events such as the US election in November could trigger a correction.

Peter Oppenheimer, Goldman Sachs' chief global equity strategist, told Business Insider in an exclusive interview that the size and scale of economic stimulus and optimism surrounding infection rates were driving the stock market.

"There's always a balance of factors for markets," Oppenheimer said. "And for the most part, what equity markets are reflecting on is the size and scale of the policy support and the encouraging news about a slowdown in infection rate and increase in a number of countries that are easing lockdown. So they are really pricing this gross inflection."

Stocks on Thursday took a breather looking ahead to another jobless-claims report in the US. However, they haven't seemed to take into account the large protests in the US fueled by the police killing of George Floyd in Minneapolis on May 25.

While many protests have been largely peaceful, several cities have seen unrest, property destruction, violence, and looting. President Donald Trump has threatened to deploy troops to quash protests.

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But while civil unrest has continued across America, stock markets haven't seemed to care. Wednesday took the Dow Jones industrial average to a three-day winning streak and the S&P 500 to its first four-day winning streak since the start of February. The S&P is also up nearly 40% from its March lows.

Oppenheimer said that big political events tend to affect financial markets and that 2020 was significant because of the US election in November and the likely policy changes if a Democrat wins.

"Politics and geopolitical events can have a big bearing on financial assets in general and risk assets in particular because they can have an effect on the risk premiums," he said. "At the moment, that's not the main focus."

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However, Oppenheimer said a market correction could happen if political issues start to weigh in. A market correction is generally defined as a major stock index declining by 10% from its recent peak.

"But as we go and as more of the recovery is priced in, and as time goes on and focus shifts to political issues, I think that will be much more of a constraint and possibly even the trigger for a correction in risk assets," Oppenheimer said.

Oppenheimer said that while markets' recent peak was due to large economic stimulus and the pickup in economic activity, the US election could change investor sentiment.

"It's also an election year in the US, and that seems to have a big bearing this year," he said. "It is important for all kinds of reasons, but also the Democratic candidate talks about the possibilities of reversing the tax cuts of 2017. If that happened, it would hit profit forecasts and expectations for next year and could trigger a de-rating."

Joe Biden, the presumptive Democratic nominee, has proposed several tax hikes, including pushing the corporate tax rate to 28% from 21%, which would roll back Trump's move. Biden has said he also wants to tax capital gains and impose a payroll tax of 12.4% on high earners and employers.

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