Goldman Sachs says the 'bear market is not over' for global stocks and predicts the bottom

Published Mon, Nov 21 20227:55 AM EST

Goldman Sachs says the current rally in global stocks is temporary, forecasting a market bottom in 2023. The Wall Street bank said it had arrived at the forecast after some of its "typically consistent" indicators of a market bottom had yet to be reached. "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," the analysts said in their "2023 Outlook: Bear with it" note to clients on Nov. 21. The investment bank said that while valuations had fallen this year, they had mostly done so in response to rising interest rates. In addition, the bank noted that investors haven't yet priced in earnings losses from a recession. "Valuations in equities have fallen a long way since the beginning of this year, but this doesn't mean to say they are cheap," the analysts said. By December 2023, Goldman Sachs expects the S & P 500 to rise to 4,000 points — that's just 0.9% higher than Friday's close. The bank sees the Stoxx Europe 600 increasing by 4% to 450 points by the end of next year. This year, the S & P 500 has fallen by over 15% to 3965 points, while the Stoxx Europe 600 has declined by around 8.5% to 432 points. Goldman's prediction is similar to Morgan Stanley's call on the S & P 500. Its Chief U.S. Equity Strategist Mike Wilson expects the S & P 500 to rise to 3,900 by the end of next year. Wilson said the S & P 500 will "probably make a new low" sometime in the first quarter of next year , adding that the "low 3000s is a really good range to think about for the low for this bear market." Goldman said it was more concerned over the potential "damage" from the speed of interest rate hikes this year — from 0.25% to 3.75%-4% — than the actual rate. In 2021, markets had priced in just two 0.25 percentage point rate hikes this year. A significant rally in stock markets would indicate that financial conditions have eased. However, Goldman's analysts are concerned that this may be premature and would likely lead to more rate hikes from the Federal Reserve. The investment bank also says it's unclear how long interest rates will remain elevated. It is forecasting no cuts to interest rates before 2024. "Even in the event that there is a 'soft landing' in the economy – particularly in the U.S., as our economists forecast – interest rates may well stay higher for longer than the market is pricing," analysts led by Peter Oppenheimer, Goldman's chief global equity strategist, said. "The downside risks to equities may be moderate, but on a relative basis the hurdle rate suggests a high bar for equities, leaving little room for a re-rating."