S&P 500 will keep within this range in 2023: David Kostin

So far, the S&P 500 index has failed to kick off a new bull market on fears of a looming recession.

Still, David Kostin – the Chief U.S. Equity Strategist at Goldman Sachs continues to believe in the Federal Reserve and its ability to orchestrate a soft landing in 2023.

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Kostin’s outlook for S&P 500

Kostin expects a 1.0% growth in the U.S. GDP next year but that, he added, won’t be sufficient to unlock a meaningful upside in the benchmark index. Explaining why on CNBC’s “Squawk on the Street”, the Strategist said:

GDP growth [will] lead to modest sales growth but the idea of margins compressing would suggest that there’s no much earnings growth, which is why the market will likely be flat in the coming year.

He, therefore, recommends that investors prioritise strong fundamentals when investing in equities for 2023.

In particular, Kostin is constructive on “healthcare” and “consumer staples” since that’s what works in times when inflation is high but is coming down.  

What if there’s indeed a recession?

Interestingly, though, the Goldman Sachs’ strategist does not expect the market to make a new low even if the economy ends up in a recession.

Between 3,750 and 4,000 is where he expects the benchmark to linger next year.

If you had a recession, earnings probably drop by 11% next year and that would suggest the market ends in year’s time at 3,750. So, I think 4,000 to 3,750 is the range you’re likely to see near term.

Even in the worst-case scenario, Kostin sees downside only to 3,600 level – just above the October low. In comparison, the S&P 500 index is currently trading at 3,930.