Business

Goldman’s stock forecast for the next 3 months isn’t very good—and investors should expect ‘less pain, but no upside’ next year


Despite a parade of recession prediction from Wall Street this year, Goldman Sachs strategists still believe that “soft landing” ability.

But that doesn’t mean stock market investors should celebrate.

The 153-year-old investment bank’s equity research team, led by David Kostin, chief US equity strategist, said this week that it believes the S&P 500 will fall about 10% to 3600 in next three months when interest rates rise.

Kostin and his team then hypothesized that the blue-chip index would end in 2023 at 4000—roughly close to today’s close.

Their argument is based on the idea that the Federal Reserve’s inflationary war will end in May next year, which should help push stock prices from lows even as global economic growth slows. .

Fed raised interest rates six times this year to combat inflation not seen since the early 1980s. In October, its work began to show as annual inflation, as measured by the consumer price index (CPI), fell to levels 7.7%significantly reduced compared to 9.1% highest in June.

“Our economists expect that by early 2023, it is clear that inflation is decelerating and the Fed will reduce the extent of rate hikes and eventually stop tightening,” Kostin wrote in a research note. save Monday.

But at the same time, with the company’s lack of earnings growth in the near term and the company’s margins facing pressure, Kostin and his team said they “expect stocks to be less painful.” more but also unprofitable” by 2023.

And they warn that there’s a key risk to their flat-year stock thesis — a recession.

“[A] fixed profit in our base case and [a] Major downside in recession means investors should be cautious,” they wrote.

A ‘different risk’

This is the truth. Some 98% CEO expect a recession within 18 months and 72% of economists polled by the National Association for Business Economics thinks there will be a recession next year. Meanwhile, 75% of voters believe we’re in a recession—and billionaires like Elon Musk agree.

Even so, Goldman Sachs believes the US economy is strong enough to weather the storm, even as its analysts admit a severe recession “remains a clear risk”.

If a recession hits, Kostin and his team argue that the company’s earnings will fall 11% next year. For the S&P 500, that means a drop to 3150 (-22%) at the bottom of the recession.

When is the low score? Kostin and his team did not make that forecast but argued that when economic growth data is at its worst, markets often bottom out.

For example, they note that in the 12 recessions since World War II, the S&P 500 has “regularly” bottomed within months of the ISM Manufacturing Index hitting a cycle low, a measure of economic activity in the manufacturing sector.

Finally, Kostin and his team note that there will be less demand for shares next year due to a decrease in corporate buybacks, as well as fewer retail investors buying shares, which This can affect the stock price.

“Share buybacks have been the largest and most consistent source of demand for shares for over 10 years but demand will decline in 2023,” they wrote, predicting a 10 percent decline in corporate buyback activity. % compared to the same period last year.

Goldman also expects households to be net sellers of stocks for the first time since 2018 next year, with an estimated $100 billion outflow.

This story was originally featured on Fortune.com

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