Goldman says the market is trapped here so stick with these stable stocks

Published Mon, May 9 202210:17 AM EDTUpdated Mon, May 9 202210:43 AM EDT

Goldman Sachs thinks equity returns will be limited for now and highlighted stocks with stable growth for investors to ride the market volatility. U.S. stocks have been under pressure amid persistent inflation, the Federal Reserve's rate-hiking cycle , recession risks, the war in Ukraine and global Covid outbreaks. The Dow Jones Industrial Average is coming off six-straight losing weeks, down about 9.5% this year. The S & P 500 is off by 13.5% in 2022, while the Nasdaq Composite is in bear market territory with a 22.4% decline. Goldman's chief U.S. equity strategist David Kostin said the path ahead for stocks will depend on the Fed's policy to combat inflation. "The best case scenario for the economy — and, eventually, for equity prices — probably involves a continued period of constrained equity market returns," Kostin said in a note Friday. "S & P 500 index swings will remain large until the path of inflation is clarified," he added. If a recession is avoided, but interest rates keep climbing, equities will continue to be vulnerable, Kostin said. If recession risks rise, interest rates could decline but "not by enough to prevent equity multiples and share prices from falling further," he said. The strategist also ruled out a short-term rebound amid the market downturn. "Tightening financial conditions and poor market liquidity make it difficult to argue for a short-term rally similar in size to the one in late March," Kostin said. In the current market environment, Goldman shared stocks with stable 10-year EBITDA growth and low near-term share price volatility. Take a look at eight stocks on Goldman's list. Dollar General makes Goldman's list of steady stocks. The discount retailer's shares are outperforming the market this year, down about 1%. Value retail could beat the market this year as consumers are mindful of spending amid high inflation, some strategists say. Dollar General is "well-positioned for an inflationary environment in which all consumers are extra conscious of value," Atlantic Equities' Daniela Nedialkova said in an April note. Also making the list is Visa . The credit card company is also beating the market in 2022, down around 6%. Visa recently beat Wall Street expectations on its top and bottom lines for the latest quarter . The company also forecasted continued growth ahead as travel recovers. Goldman also highlighted utility stock Xcel Energy. Xcel shares are up 8% this year. Utilities are typically seen as defensive stocks, or those that tend to be stable regardless of how the overall market performs. Evercore ISI at the beginning of 2022 called Xcel a "high quality utility." Other stocks to make the list include Domino's Pizza , Johnson & Johnson, Bank of New York Mellon and Fastenal . —CNBC's Michael Bloom contributed to this report.

A sign is posted in front of a Dollar General store in Vallejo, California, on March 17, 2022.

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Goldman Sachs thinks equity returns will be limited for now and highlighted stocks with stable growth for investors to ride the market volatility.