Markets have rallied on the back of strong earnings, good macroeconomic data, and bullish sentiment. But it’s easy to get swept up in blind optimism, and investors need to proceed with caution. Goldman Sachs compiled the 22 best investing ideas from its US analysts, regardless of sector. Investors have cheered lower inflation, signals that the Federal Reserve will end its rate hiking cycle, and data that indicates the US might just avoid a recession after all.
With this influx of good news has come a wave of investor optimism, and strong sentiment has pushed the S&P 500 higher than many analysts were expecting it to go this year. But the strength of the stock market rally could potentially be its own undoing, as valuations outpace reality and investors might drag the market back down to earth.
“US equities are caught between macro news and valuation. Stocks do not look cheap, but there is little doubt that the macro news — higher growth, lower inflation — is a more equity-friendly mix than was expected,” wrote Steven Kron, director of Americas equity research at Goldman Sachs.
In a note to clients published August 1, Kron broke down what he’s seeing in markets right now — and more importantly, what stocks Goldman Sachs analysts are bullish on right now.
Too much good news can be a bad thingKron pointed out a number of positive signs of both stock-market and economic health that cropped up over the last month.
These include strong performance among bank stocks after the banking crisis of earlier this year, a recovery in oil prices after trending downwards for the past few months, and higher advertising spending after a slowdown in the first half of the year.
As for the broader economy, it seems as though the Federal Reserve’s rate hikes have been doing their job, with core PCE inflation only rising 4.1% year-over-year. Despite restrictive monetary policy, economists across the market, including Goldman Sachs’ own Jan Hatzius, believe that there’s a far lower chance of a recession than there was at the beginning of the year.
“Receding inflation, an end to Fed tightening, accelerating growth – these are all the makings of a Goldilocks environment for stocks, potentially,” Kron summarized.
Not all the news is good news, however. While investors will likely continue to focus on falling inflation data as a sign that it’s time to jump back into stocks, Kron is worried about investors’ habit of buying on any decent economic data readings — even if the data itself isn’t all that strong.
That’s pushed markets higher, but it has also stretched valuations, Kron wrote. He thinks stocks look expensive right now, with the S&P 500 only 4% below its peak in early 2022, and he’s not sure how much more room it has to rise.
“Because the market has already taken meaningful credit for better growth and inflation news, the road ahead could be a little bumpier than in the last few weeks,” he wrote.
The 24 best stocks to buy in today’s marketIt’s still a stock-picker’s market, and Kron has some stock picks for investors trying to strike a balance between avoiding over-exuberance and profiting from the current rally.
The 24 stocks below are the top picks among Goldman Sachs analysts right now across a variety of investing styles and sectors. Analysts expect strong risk-adjusted returns for each of the stocks, and the median upside to price target for the stocks below is 21% — giving these stocks plenty of room to run higher.
Along with each company is its ticker, price target, percent upside to that target, upside to next year’s expected earnings versus consensus estimates, and what percentage of Wall Street recommends the stock as a buy. In addition, there’s a brief summary of each stock’s investment thesis.