Investors looking for a brighter 2023 for the US stock market may be disappointed, according to Goldman Sachs strategists, who believe the recent relief rally for equities will soon expire.
In a Monday research note, strategists including Peter Oppenheimer and Sharon Bell forecasted that the bear market would last until 2023, with the S& P 500 ending the year at 4,000 index points, up just 0.9% from Friday’s close.
“The bear market, in our opinion, is not over,” they wrote. “The circumstances that are usually associated with an equity trough have not yet been met. We anticipate lower valuations (associated with recessionary results), a trough in growth momentum, and a peak in interest rates before a lasting recovery begins.”
The analyst notes came after softer-than-expected inflation statistics propelled the market’s largest gain in two years, with the Dow Jones Industrial Average rising 1,200 points and the S&P 500 rising 5%.
Investors were encouraged by the official report, which showed that the consumer price index rose 7.7% in October, the slowest annual rate since January, raising prospects for a more dovish Federal Reserve in the coming months.
The bounce came after months of market instability due to fears of an oncoming recession, increased interest rates, and excruciatingly high inflation. The Goldman strategists, on the other hand, pointed out that the bounce is “not the first we have witnessed in this bad market.”
In fact, Oppenheimer issued an analyst note in September stating that stocks had not yet reached the bottom; shortly after, the S&P hit a new low for the year.
“In our opinion, the rate of rise in interest rates (rather than their absolute level) has the potential to do greater harm as investors are likely to focus more on growth and earnings difficulties,” they wrote.
Despite the recent slowing of inflation, Wall Street is increasingly concerned that the Fed’s aggressive interest rate hikes to combat inflation would precipitate a recession.
Officials authorized a fourth consecutive 75-basis-point rate hike this month, raising the federal funds rate to a range of 3.75% to 4% close to restrictive levels, and showed no signs of slowing rate hikes.
“Let me say this,” Fed Chairman Jerome Powell said earlier this month to reporters. “It is far too early to contemplate a pause. People think of pauses when they hear delays. In my opinion, talking about halting our rate hikes is far too soon. We still have a long way to go.”