The Stock Market Has Plateaued, Goldman Sachs Says

The stock market may not do any better in 2023 than it’s doing now, according to Goldman Sachs’ predictions for the rest of the year.

“A soft landing — and in fact above-trend growth — is already priced in U.S. equities. Valuations are elevated vs. history and will be constrained by an eventual rise in interest rates. Even avoiding recession, earnings are unlikely to grow substantially in 2023," Goldman Sachs Chief US Equity Strategist David Kostin wrote in a mid-February note, Yahoo Finance reported.

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Kostin raised his year-end S&P 500 price target from 3,600 to 4,000, saying the debt-ceiling debate presents a risk. U.S. Stock alternatives, such as non-U.S. stocks, credit, and cash offer “superior” risk-adjusted return prospects, he wrote.

Dow and Nasdaq rallies this year have surprised him. With the unpredictable timing of the Fed’s interest rate hike slowdown, investors face a potential slowing of the economy and compression of stock valuation multiples. Corporations, meantime, are having a tepid earnings season despite the market’s advance in 2023.

The fourth-quarter blended earnings decline for the S&P 500 is tracking at 5.3%, according to FactSet. If the percentage holds, it will mark the first year-on-year earnings drop reported by the index since the third quarter of 2020.

The combination of further rate increases and pressured corporate profit margins has other strategists looking for a pullback.

"If we look at market pricing so far this year, it's not even pricing in a soft landing. It's pricing in takeoff. It's pricing inflation to come down. It's pricing growth to avoid a recession altogether. It's also pricing in central banks cutting rates starting mid this year. So that is really markets are priced for perfection," BlackRock Global Chief Investment Strategist Wei Li told Yahoo Finance. "And in the near term, beyond FOMO and chasing momentum, it's hard to see a fundamental reason for stocks to keep pushing higher."