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Interest rates continue to rise, dragging down the prices of risk assets. peterschreiber.media/Getty Images This story is available exclusively to Insider subscribers. Become an Insider and start reading now. Higher interest rates mean a grimmer economic outlook and a further drag on the stock market. Goldman Sachs lowered its 2022 projection for the S&P 500. The firm says quality, short-duration stocks will outperform long-duration. On Wednesday, the Federal Open Market Committee raised its key interest rate by 75 basis points for a third straight time.
Their decision lifted the fed funds rate to a range between 3% and 3.25%, the highest since early 2008. And, their median forecast is that this rate will be at 4.4% by the end of this year.
As the fight to squash inflation continues, Wall Street is coming to terms with what higher rates could bring besides less inflation: lower consumer demand that slows the economy, and weaker stock prices. On Friday, concerns about the Fed’s rate hikes pushed the S&P 500 towards its lows of the year.
A day earlier, Goldman Sachs equity strategists cut their year-end target for the index from 4,300, which it hit mid-August, to 3,600.
“The expected path of interest rates is now higher than we previously assumed, which tilts the distribution of equity market outcomes below our prior forecast,” strategists led by David Kostin said in a note.
One of those outcomes is a so-called hard landing in which higher rates trigger a recession. That scenario could see the S&P 500 plunge to 3,400 by year-end, and 3,150 by the end of the first quarter, Kostin said.
A low unemployment rate is signaling that consumer incomes and spending could increase by next year. This scenario would keep inflation elevated and lead the Fed to hike rates further than current projections, he said.
He added that based on the team’s conversations with clients, a majority of equity investors now believe a hard landing is inevitable. What’s still unclear is the timing, magnitude, and duration of a potential recession. Most portfolio managers estimate that a recession could hit the US economy sometime in 2023, according to Kostin.
His team now recommends defensive positioning in light of the unpredictability. Investors should focus on stocks that have strong balance sheets, high returns on capital, and stable sales growth.
Rising interest rates also mean short-duration stocks, those that generate a larger share of their cash flows in the near future, will outperform their long-duration peers, Kostin said. That’s because stocks with cash flows pegged to the distant future are more sensitive to interest rates, he added.
Below is a list of 26 stocks that Goldman added to its newly rebalanced basket of short-duration stocks.
1. Macy’s Inc
Markets Insider Ticker: M
Market Cap (billion): $4
2022 Sales Growth: 33%
2023 Sales Growth: 3%
Equity Duration (years): 13.5
2. Kohl’s Corp.
Markets Insider Ticker: KSS
Market Cap (billion): $3
2022 Sales Growth: 18%
2023 Sales Growth: (4%)
Equity Duration (years): 15.3
3. PVH Corp.
Markets Insider Ticker: PVH
Market Cap (billion): $3
2022 Sales Growth: 22%
2023 Sales Growth: (1%)
Equity Duration (years): 15.8
4. Toll Brothers, Inc.
Markets Insider Ticker: TOL
Market Cap (billion): $5
2022 Sales Growth: 22%
2023 Sales Growth: 8%
Equity Duration (years): 17.2
5. Albertsons Companies, Inc.
Markets Insider Ticker: ACI
Market Cap (billion): $14
2022 Sales Growth: 4%
2023 Sales Growth: 5%
Equity Duration (years): 17.4
6. Ovintiv Inc.
Markets Insider Ticker: OVV
Market Cap (billion): $12
2022 Sales Growth: 42%
2023 Sales Growth: 35%
Equity Duration (years): 20
7. DT Midstream, Inc.
Markets Insider Ticker: DTM
Market Cap (billion): $5
2022 Sales Growth: NM
2023 Sales Growth: 7%
Equity Duration (years): 20.2
8. Occidental Petroleum Corp.
Markets Insider Ticker: OXY
Market Cap (billion): $58
2022 Sales Growth: 46%
2023 Sales Growth: 44%
Equity Duration (years): 20.5
9. Viatris, Inc.
Markets Insider Ticker: VTRS
Market Cap (billion): $11
2022 Sales Growth: 49%
2023 Sales Growth: (8%)
Equity Duration (years): 11.5
10. Tenet Healthcare Corp.
Markets Insider Ticker: THC
Market Cap (billion): $6
2022 Sales Growth: 10%
2023 Sales Growth: (1%)
Equity Duration (years): 13.7
11. AmerisourceBergen Corp.
Markets Insider Ticker: ABC
Market Cap (billion): $29
2022 Sales Growth: 12%
2023 Sales Growth: 9%
Equity Duration (years): 16
12. Enovis Corp.
Yahoo Finance Ticker: ENOV
Market Cap (billion): $3
2022 Sales Growth: 26%
2023 Sales Growth: (59%)
Equity Duration (years): 19.3
13. Regeneron Pharmaceuticals, Inc.
Markets Insider Ticker: REGN
Market Cap (billion): $73
2022 Sales Growth: 89%
2023 Sales Growth: (25%)
Equity Duration (years): 19.4
14. Ryder System, Inc.
Markets Insider Ticker: R
Market Cap (billion): $4
2022 Sales Growth: 15%
2023 Sales Growth: 24%
Equity Duration (years): 18.3
15. Gates Industrial Corp. plc
Markets Insider Ticker: GTES
Market Cap (billion): $3
2022 Sales Growth: 24%
2023 Sales Growth: 4%
Equity Duration (years): 19.4
16. Univar Solutions Inc.
Markets Insider Ticker: UNVR
Market Cap (billion): $4
2022 Sales Growth: 15%
2023 Sales Growth: 20%
Equity Duration (years): 19.4
17. AMERCO
Markets Insider Ticker: UHAL
Market Cap (billion): $10
2022 Sales Growth: 23%
2023 Sales Growth: 7%
Equity Duration (years): 19.7
18. Micron Technology, Inc.
Markets Insider Ticker: MU
Market Cap (billion): $55
2022 Sales Growth: 22%
2023 Sales Growth: 1%
Equity Duration (years): 19.1
19. Advanced Micro Devices, Inc.
Markets Insider Ticker: AMD
Market Cap (billion): $120
2022 Sales Growth: 68%
2023 Sales Growth: 60%
Equity Duration (years): 19.2
20. Coherent Corp.
Markets Insider Ticker: COHR
Market Cap (billion): $5
2022 Sales Growth: 17%
2023 Sales Growth: 37%
Equity Duration (years): 20.1
21. Qorvo, Inc.
Markets Insider Ticker: QRVO
Market Cap (billion): $9
2022 Sales Growth: 17%
2023 Sales Growth: (5%)
Equity Duration (years): 20.3
22. Global Payments Inc.
Markets Insider Ticker: GPN
Market Cap (billion): $33
2022 Sales Growth: 15%
2023 Sales Growth: 5%
Equity Duration (years): 20.3
23. MKS Instruments, Inc.
Markets Insider Ticker: MKSI
Market Cap (billion): $6
2022 Sales Growth: 27%
2023 Sales Growth: 9%
Equity Duration (years): 20.4
24. Valvoline, Inc.
Markets Insider Ticker: VVV
Market Cap (billion): $5
2022 Sales Growth: 26%
2023 Sales Growth: 9%
Equity Duration (years): 9.8
25. Frontier Communications Parent, Inc.
Markets Insider Ticker: FYBR
Market Cap (billion): $6
2022 Sales Growth: (8%)
2023 Sales Growth: (10%)
Equity Duration (years): 4.6
26. PG&E Corp.
Markets Insider Ticker: PCG
Market Cap (billion): $26
2022 Sales Growth: 12%
2023 Sales Growth: 8%
Equity Duration (years): 18.5
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