Equity markets have started a rebound since Monday that looks more like a rebound in a bear market, while the short-term trend is likely to continue the decline, which would be fueled by a profit recession in the coming quarters.
For Goldman Sachs strategists, there are two scenarios for the US stock market and its flagship index, the S&P 500, to consider.
Two scenarios for the S&P 500 index
Details of Goldman Sachs forecasts for the S&P 500 Index
Source: Goldman Sachs, “Where to Invest Now,” October 4, 2022
In a note dated 4 October, the American bank estimates that in a soft landing scenario, corporate results would remain stable compared to 2022, at $ 234 (consensus level according to Factset), but that the valuation multiples could be around 15. 1x in mid -2023 before returning to their historical year-end average (16.4x).
In this scenario, the S&P index would reach a low of 3,600 points in mid-2023 and then rebound towards 4,000 points at the end of the year.
The other, more pessimistic scenario would see corporate earnings fall by 11% to $ 200 per share at the index level (before a 15% rebound in 2024) and a valuation multiple that would drop to 14.3x. in mid-2023 before bouncing to 16.7x at the end of 2023.
The decline in profits would mainly derive from a compression of company margins (11% in 2023 against 12.2% in 2021 and 12.3% in 2022) while sales would drop by 2% (+ 16% in 2021 and + 12% in 2022). 2022).
In this scenario, the S&P 500 index would drop to 3,150 points in mid-2023 and then return to 3,750 points at the end of 2023, the current level.
Like any equity strategy team, Goldman Sachs’ views may be wrong and are aimed more at providing a framework than a true investment strategy.
However, these views contrast with the market consensus, which still counts on earnings growth of 8% this year and 6% in 2023 (the US bank also expects 8% in 2022 but 3% in 2023. ).
In terms of allocation, the bank’s strategists recommend a “neutral” position on US equities at 3 and 12 months, an underweight in general equities at 3 months and a “neutral” position at 12 months.
In general, the bank has a neutral view on all risky assets and recommends overweighting only treasury bills, commodities and cash.
Within this allocation strategy, the dominant view of equities today is that of a “soft landing”.
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