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Goldman Sachs Has Bad News For Market Bulls

While many market bulls are growing more hopeful, analysts at Goldman Sachs say this needs to happen before stocks can move significantly higher.
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The biggest question in the stock market is whether this year’s slump is close to an end. The S&P 500 has dropped 17% year to date.

TheStreet.com recently asked several experts where stocks are headed from here. This is what they had to say:

  • Jack Ablin, chief investment officer of Cresset Capital: “We’re in a cyclical downturn, and we think the downturn is just related to [fear of] recession and earnings. If we are in a cyclical downturn, we’re near the bottom. Typically the downturn entails a 15% to 20% drop in the market, which we’ve already had. And it typically lasts one to three years. So far it’s been 10 months. I would expect the market to return to its January 2022 record highs by late 2023 or early 2024.”
  • Tim Ghriskey, portfolio manager for Ingalls & Snyder: “We have great confidence that the market will rise over time. That being said, we have been in a severe downturn this year. We still think there will be a lot of volatility. The Federal Reserve has drawn a line. It won’t back off from fighting inflation by raising interest rates…. We would like to think that the market is bottoming, but people have said that several times during the downturn. We aren’t jumping in with two feet.”
  • Mick Heyman, an independent financial advisor: “We’re in the midst of a bear market. It’s probably not over yet, but I think we’re close to the worst of it. Things won’t get much better until inflation gets under control. But I’m not worried about the economy. I think any recession will be mild. I don’t think Fed rate increases will be that harmful to the economy.”

Goldman Sachs View

Meanwhile, Goldman Sachs is pessimistic for the short term. “The conditions that are typically consistent with an equity trough have not yet been reached,” Goldman strategists wrote in a recent commentary.

“We would expect lower valuations (consistent with recessionary outcomes), a trough in the momentum of growth deterioration, and a peak in interest rates before a sustained recovery begins.”

Rising interest rates will weigh on the market, the strategists said. The Federal Reserve has lifted rates by 3.75 percentage points since March, and experts expect it to move another 0.5 percentage point next month.

“The speed of the rise in interest rates (rather than their absolute level) has the potential to do more damage, as investors are likely to increasingly focus on growth and earnings weakness,” the strategists said.

“We continue to think that the near-term path for equity markets is likely to be volatile and down before reaching a final trough in 2023.”

They do anticipate a rebound next year. But, “we expect overall returns between now and the end of next year to be relatively low.”