Stocks will likely benefit as economic growth slows after the end of fiscal stimulus, says Goldman Sachs chief economist Jim O’Neill.
Stocks will benefit because the growth slowdown will force the Federal Reserve to maintain its monetary stimulus, he told CNBC.
"I think stuff's cheap" in the stock market, O'Neill said. "So long as growth doesn't disappear, just softening a little, it might help the market."
Data from the last few weeks show the economy’s growth path is decelerating, O’Neill says.
"To make sure that that's only temporary we need to get a clear sign that the Fed will keep financial conditions as accommodative as possible," he said.
Discussing Europe, O’Neill said the bank stress tests are important, but that the real key is Spain.
"The part of it that's really vital is the Spanish banks. It would have been nicer in my view to have just Spanish tests," he said.
Many experts predict Spain will be the next domino to fall after Greece.
As for U.S. stocks, individual investors apparently are more scared than O’Neill. They began taking money out of stock mutual funds in May, according to the Investment Company Institute.
"We have gone through two of the worst bear markets since the Great Depression, and it has given investors a better sense of the risks and dangers of investing (in stocks)," Brian Reid, the group’s chief economist told The Wall Street Journal.
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