Goldman says bear market 'not yet over'
By Alexander Bueso
Date: Tuesday 22 Nov 2022
(Sharecast News) - Goldman Sachs expected global equities to begin moving into a new bull market in 2023 - but from lower levels.
In other words, the current bear market was not over, strategists including Peter Oppenheimer, Sharon Bell, Lilia Peytavin and Guillaume Jaisson said in a research note sent to clients and dated 21 November.
Among the conditions needed for a bottom in stock markets were valuations more in line with a recessionary outcome, a trough in the pace at which growth was weakening and interest rates topping out.
"The initial rebound from the trough is likely to be strong, in common with the beginning of most cycles before transitioning into a 'Post Modern Cycle' with lower returns," they added.
In particular, they noted how real interest rates in the US had risen by almost 85 basis points since June, with 10-year Treasury yields up by over 50bp.
Meantime, their recommendation to clients was to focus on a barbell approach centred on companies with quality, strong balance sheets, and stable margins on the one hand, together with "deep value", energy and resources outfits where in their opinion valuation risks were limited.
They also expressed a preference for those companies that were able to compound their earnings and returns through reinvestment and dividends.
Furthermore, they believed that in 2023, and contrary to the last cycle, diversifying across styles and regions together with a focus on valuation should boost returns.
Their year-end target for the Stoxx 600 was for a total return, which includes dividends, of 9% in local currency and of 10% in US dollar terms, whereas the S&P 500 was seen returning 3% in both local currencies and US dollars.
The Stoxx 600 was seen ending 2023 at 450 points and the S&P 500 at 4,000.
"So while near-term risks are to the downside in global equities, it is likely that they enter a 'Hope' phase in 2023; we expect overall returns between now and the end of next year to be relatively low."
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