Goldman Strategist Sees Stocks Downside Even if Recession Avoided

(Bloomberg) — The outlook for U.S. stocks isn’t particularly bright, even if an outright recession is avoided, according to Goldman Sachs Group Inc. strategists.

Most Read from Bloomberg

“The best case scenario for the economy — and, eventually, for equity prices — probably involves a continued period of constrained equity market returns,” the strategists led by David Kostin wrote in a note to clients. “Risks around equity valuations are skewed to the downside even in our base-case, non-recessionary scenario.”

The S&P 500 capped its fifth week of declines on Friday, the longest such streak since June 2011, and U.S. futures on Monday signaled the drop may extend. The benchmark has fallen more than 13% this year as record inflation readings, a slowing economy and aggressive tightening by the Federal Reserve to tame soaring prices have weighed on risk appetite and valuations.

Goldman has cut its year-end target for the S&P 500 twice this year. Its current forecast of 4,700 index points implies marginally negative returns in 2022 for U.S. equities, though 14% upside from current levels. While the gauge could still reach the bank’s target if recession is avoided, an economic contraction could push it down to 3,600 points, according to the note.

“Swings will remain large until the path of inflation is clarified,” the strategists said, adding that “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.”

The only silver lining for investors is that most of the bad news is now likely in the price, following the recent retreat, suggesting “equities will require an extremely large negative shock to drive share prices substantially lower in the near future,” according to the note.