Goldman Sachs (363.06, -7.61, -2.03%) Group (Goldman Sachs Group Inc.) strategists have reduced their expectations for U.S. stock market returns this year, citing the prospect of more aggressive monetary tightening, which has put pressure on valuations.
The strategists reduced the S&P 500 benchmark index’s year-end target to 4,900 points from 5,100 points. The index closed at 4,418.64 points on Friday.
Despite the less optimistic forecast, it still implies that the economy will grow by 11% from current levels to a record high, though strategists warned of greater downside risks.
The team, led by David Kostin, “is more challenging this year than in 2021,” wrote the team, led by David Kostin, “with uncertainty about the path of inflation and Federal Reserve policy.”
The U.S. stock market started the year at a disadvantage as the Fed prepared to close the floodgates of abundant liquidity. After the epidemic, the stock market went up a lot because there was a lot of money to buy and sell.
U.S. stocks have fallen 7.3% this year, underperforming the rest of the world’s stock markets. U.S. stocks have fallen 7.3% this year, underperforming the rest of the world’s stock markets.
Goldman Sachs expects the Fed to raise interest rates seven times by 2022, instead of five.
While the Goldman Sachs team still expects earnings per share for S&P 500 constituents to rise 8% from a year earlier to $226, the team says surprisingly high inflation (164.64,-9.43, -5.42%) means valuations will adjust accordingly. There will be a 25-basis-point rate rise at every one of the Fed’s seven remaining meetings in 2022, not the five hikes that were previously thought to be possible.
While a strong earnings season helped ease some concerns about a less optimistic macroeconomic backdrop, stocks remained volatile, with the military standoff on the Ukrainian border further adding to the unease.
According to Goldman Sachs strategists, if inflation remains high and the Fed raises rates more than currently expected, the S& P 500 will fall 12% to 3,900, and even lower if tightening causes the economy to enter a recession.In contrast, according to their optimistic forecast, if inflation falls back more quickly, and the need to raise interest rates by a smaller margin, the benchmark interest rate will rise to 5,500 points.
Earlier, BNP Paribas (35.89, -1.97, -5.20%) (BNP Paribas) this week lowered its year-end estimate for the S & P 500 to 4,900 points, citing rising inflation and falling nominal growth rates as reasons for increased pressure on margins.
According to the Goldman Sachs report, the $4,900 target implies a full-year return of just 4% for the U.S. stock market, “slightly below the historical average.”