At a time when U.S. inflation has cooled less than expected and the Federal Reserve continues to raise interest rates, Goldman Sachs, which has been optimistic about many U.S. stocks, has to bow its head and admit its mistake, sharply lowering the target price of U.S. stocks.
On Thursday, Eastern Time, Goldman Sachs lowered its year-end target price for the S&P 500 to 3,600 from its previous forecast of 4,300, saying a sharp shift in the outlook for rising interest rates would weigh on U.S. stock valuations. This means that Goldman Sachs expects U.S. stocks to continue to fall by more than 4% for the rest of the year.
Under inflationary pressure, Goldman Sachs had to turn from bulls to bears
Previously, Goldman Sachs remained generally bullish on the outlook for U.S. stocks, and was optimistic that U.S. stocks could rise in the rest of the year.
In a Sept. 12 report, strategists such as Goldman’s David J. Kostin had said they thought it was safer to bet on the U.S. than on Europe, but since then, the S&P 500’s The performance has been lagging the Stoxx Europe 600 index. And in the report at the time, the Kostin team also predicted that if U.S. inflation showed clear signs of easing, the U.S. stock index could rebound to 4,300 points by the end of the year.
The U.S. CPI data for August quickly gave Goldman Sachs a resounding slap in the face.
On September 13, data released by the US Department of Labor showed that the US CPI in August increased by 8.3% year-on-year, although it was lower than the previous value of 8.5%, but still higher than the market expectation of 8.1%. The core CPI increased by 6.3% year-on-year, compared with the expected 6.1% and the previous value of 5.9%. This data directly caused the S&P 500 index to plunge 4.32% on the day, and then started a continuous decline for several days.
Under the pressure of inflation cooling less than expected and the Federal Reserve raising interest rates sharply, the Kostin team had to overturn its previous conclusion and lowered its S&P 500 target price at the end of the year from 4300 to 3600, which means that US stocks are expected to be higher than their original price. The closing price on Thursday (3757.99 points) continued to fall by 4.2%.
Is a hard landing inevitable in the context of Fed rate hikes?
At this week’s Fed decision, Fed Chairman Jerome Powell has signaled that he will risk a recession to fight inflation, raising concerns that the central bank could undermine global growth.
Goldman Sachs strategists wrote in the report that most equity investors have accepted the inevitable view of a hard landing in the U.S. economy, and they are now more concerned about the timing, size and duration of the recession. Under this framework, the 3-month, 6-month and 12-month targets for the S&P 500 are 3,400, 3,150 and 3,750, respectively.
Goldman Sachs had previously predicted that the U.S. real interest rate would be around 0.5% by the end of 2022, but now, Goldman Sachs has raised this forecast to 1.5%.
The strategists wrote in the report:
“Our economists now forecast that the FOMC will hike rates by 75 basis points in November, 50 basis points in December and 25 basis points in February, bringing the funds rate to a peak of 4.5%-4.75%. .”
Goldman Sachs recommends defensive positioning
Goldman Sachs said risks to its latest forecast remain skewed to the downside as a recession becomes more likely – if there is a U.S. recession, corporate earnings will shrink, yield gaps will widen and the U.S. benchmark will fall to 3,150. low.
Goldman Sachs said that in the past few years, U.S. stock valuations and real yields have been in step, but this relationship has recently appeared dislocation, posing a risk to the stock market.
Goldman Sachs strategists wrote in a report that under the higher interest rate scenario in the Goldman Sachs valuation model, support for the US stock market earnings ratio to reach 15 times, down from the previous forecast of 18 times.
Goldman Sachs advises investors to take a defensive allocation in the current environment of increasing uncertainty, recommending holding stocks with quality attributes such as strong balance sheets, high returns on capital and stable sales growth.