‘The near-term path for equity markets is likely to be volatile and down’
Author of the article:
Bloomberg News
Farah Elbahrawy
Publishing date:
Nov 21, 2022 • 1 day ago • 3 minute read
Join the conversation
Stock investors hoping for a better year in 2023 will be out of luck, predict Goldman Sachs strategists. Photo by Getty Images Equity investors hoping for a better year in 2023 will be disappointed, according to Goldman Sachs Group Inc. strategists, who said the bear market phase is not over yet.
Advertisement 2 This advertisement has not loaded yet, but your article continues below.
“The conditions that are typically consistent with an equity trough have not yet been reached,” strategists including Peter Oppenheimer and Sharon Bell said in a note on Monday.
FP Investor By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300
They said a peak in interest rates and lower valuations reflecting a recession are necessary before any sustained stock-market recovery can happen.
The strategists estimate the S&P 500 will end 2023 at 4,000 index points — just 0.9 per cent higher than Friday’s close — while Europe’s benchmark Stoxx Europe 600 will finish next year about four per cent higher at 450 index points. Barclays PLC strategists led by Emmanuel Cau have the same target for the European gauge and said the path to get there will be “tricky.”
The comments come after a recent rally — driven by softer inflation data in the United States and news of easing COVID-19 restrictions in China — that saw several global indexes enter technical bull market levels. The sharp rebound since mid-October followed a tumultuous year for global markets as central banks embarked on aggressive rate hikes to tame soaring inflation, stoking concerns of recession.
Advertisement 3 This advertisement has not loaded yet, but your article continues below.
Goldman’s strategists said the gains aren’t sustainable, because stocks don’t typically recover from troughs until the rate of deterioration in economic and earnings growth slows down.
“The near-term path for equity markets is likely to be volatile and down,” they said.
The view echoes that of Morgan Stanley’s chief investment officer Michael Wilson, who on Monday reiterated that U.S. stocks will end 2023 almost unchanged from their current level, and will have a bumpy ride to get there, including a big decline in the first quarter.
According to his note on Monday, Wilson’s clients have pushed back against his view of the S&P 500 falling to as low as 3,000 points in the first three months of next year — a drawdown of 24 per cent from Friday’s close.
Advertisement 4 This advertisement has not loaded yet, but your article continues below.
“What’s yet to be priced is the earnings risk and that is what ultimately will serve as the catalyst for the market to make new price lows,” he said.
Still, strategists aren’t all united about the fate of stocks after a volatile 2022.
“Three double-digit rallies this year in the S&P 500 argue a case that as difficult as 2022 has been for equity markets, there’s enough resilience to suggest that this year could be a harbinger for better times ahead,” John Stoltzfus, chief investment strategist at Oppenheimer Asset Management Inc., said in a note on Monday.
Recommended from Editorial Markets keeping you up? Try this different goals-based investing approach Five investing lessons so you can be prepared for the next market event Meanwhile, Goldman’s strategists expect Asian stocks to outperform next year, with the MSCI Asia-Pacific ex-Japan ending the year 11 per cent higher at 550 points. Their peers at Citigroup Inc. turned more bullish on Chinese stocks on Monday, saying Beijing’s pivots on COVID Zero and property should lift earnings.
With the bear market still in full swing for now, Oppenheimer and his team recommended focusing on quality companies with strong balance sheets and stable margins, as well as those with deep value and energy and resources stocks, where valuation risks are limited.
Bloomberg.com