50% Off! Beat the market in 2025 with InvestingProCLAIM SALE

Goldman Strategists See Stock Returns Staying ‘Fat and Flat’ Over Next Year

Published 06/27/2023, 06:42 PM
© Reuters
US500
-
GS
-

(Bloomberg) -- Goldman Sachs Group Inc (NYSE:GS). strategists expect stock returns to remain mostly “fat and flat” over the next year, capped by higher-for-longer interest rates and frothy valuations. 

The equity gains seen this year are in line with the late-cycle “optimism” phase that started at the end of 2022, according to Goldman, with multiples rising despite central-bank tightening and tech shares getting a boost from artificial-intelligence hype.

“Despite these improvements, we think the absolute upside for equity markets is constrained by both high valuations and the prospects for interest rates to remain higher for longer than the market has been pricing,” Goldman strategists led by Peter Oppenheimer said in a note.

In the current cycle, the growth phase has been characterized by relatively low returns in a wide trading range, they wrote.

With the S&P 500 Index trading at about 20% above its 20-year average, valuations have de-coupled from rising rates and bond yields. According to Goldman, this means that investors either expect quick rate cuts or their long-term growth expectations have increased, or both.

The strategists said that in the absence of a recession, central banks won’t be in a rush to reduce rates, and they expect virtually no profit growth this year and mid-single digit expansion in 2024.

Goldman’s team continues to favor a barbell approach of combining quality growth, strong balance sheet and high-margin businesses, with some “deep value” where valuation risks are skewed to the upside. 

Looking at options, the put-call skew in stocks signals that upside positioning is now crowded, while downside protection is attractively priced, the strategists wrote. 

©2023 Bloomberg L.P.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.