Strategists at investment bank Goldman Sachs have lowered their expectations for US stock returns this yearwith the possibility of monetary policy tightening further affecting assessments.
Strategists lowered their year-end target for the benchmark S&P 500 index to 4,900, down from 5,100 previously. This compares to Friday’s close of 4,418.64 points.
Less optimistic forecasts still point to a rise of 11% from current levels, although strategists have warned that risks are tilted to the downside.
“The overall background this year is much more challenging than it was in 2021,” the Wall Street giant’s team led by David Kostin wrote. “Uncertainty prevails over the course of inflation and the policy of the Federal Reserve,” according to “Bloomberg” and reviewed by “Al Arabiya.net.”
While the Goldman team still expects S&P 500 earnings to grow 8% year over year to $226, it said the sudden upside inflation means valuations will be adjusted accordingly. Goldman economists this week forecast that the Fed will raise interest rates by 25 basis points at each of the seven remaining 2022 meetings, instead of the five increases it previously forecast.
A strong earnings season is helping to ease some concerns over the macroeconomic backdrop, as stock markets remain volatile, but a potential military confrontation on the Ukrainian border is weighing on risk appetite.
In a different scenario, Goldman Sachs strategists predicted that if inflation remains high and pushes the Fed to increase its gains more than currently forecast, the S&P 500 will drop 12% to 3,900, or even drop to 3,600 if tightening drives a recession. . Conversely, if inflation declines faster and smaller hikes are needed, the benchmark will rise to 5,500 points, according to the bullish scenario.
The Goldman Sachs outlook comes on the heels of BNP Paribas this week lowering its year-end forecast for the S&P 500 to 4900, citing increased margin pressure due to higher inflation and lower nominal growth.
The target of 4,900 suggests full-year returns of just 4% for US stocks, “slightly below the historical average,” notes Goldman Sachs.