Strategists at Goldman Sachs say the bear market will continue into 2023

(Bloomberg) — Equity investors hoping for a better year in 2023 will be disappointed, according to strategists at Goldman Sachs Group Inc. , who said that the bear market phase is not over yet.

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“The conditions that usually correspond to stock lows have not been reached,” strategists including Peter Oppenheimer and Sharon Bell wrote in a note on Monday. They said higher interest rates and lower valuations reflecting recession were necessary before any sustained recovery in the stock market could occur.

Analysts estimate that the S&P 500 will end 2023 at 4,000 points – just 0.9% higher than Friday’s close – while the Stoxx Europe 600 will end next year about 4% higher at 450 points. Strategists at Barclays Plc led by Emmanuel Kao have the same goal for the European scale and said the road to getting there will be “tough”.

The comments come after a recent rally – spurred by weak US inflation data and news of easing Covid restrictions in China – which saw several global indices enter technical bull market levels. The sharp recovery since mid-October came after a turbulent year for global markets as central banks embarked on massive interest rate hikes to tame spiraling inflation, stoking fears of a recession.

Goldman strategists said the gains aren’t sustainable, because stocks don’t usually recover from bottoms until the rate of decline in the economy and earnings growth slows. “The near-term path of equity markets is likely to be volatile and downward,” they said.

That view mirrors that of Michael Wilson of Morgan Stanley, who reiterated today that US stocks will end 2023 virtually unchanged from their current level, and it will be a bumpy ride getting there, including a big drop in the first quarter.

According to his note on Monday, Wilson’s clients backtracked on his view of the S&P 500 falling 3,000 points in the first three months of next year — a 24% decline from Friday’s close. “What hasn’t been priced in yet is profit risk and this is what will ultimately act as a catalyst for the market to achieve new lower price levels,” he said.

However, not all strategists are united on the fate of stocks after a volatile 2022.

“Three double-digit rises this year in the S&P 500 argue for a tough case like 2022 for stock markets,” says John Stoltzfus, chief investment analyst. “There is enough resilience to suggest this year could be a harbinger of better times ahead.” at Oppenheimer Asset Management, in a note on Monday.

Meanwhile, strategists at Goldman Sachs expect Asian stocks to outperform next year, with MSCI Asia Pacific excluding Japan ending the year up 11% at 550 points. Peers at Citigroup Inc. To the upside on Chinese stocks today, saying Beijing pivots on Covid Zero and properties should lift earnings.

With the bear market still in full swing for now, Oppenheimer and his team recommended focusing on high-quality companies with strong balance sheets and stable margins, as well as companies with deep value and energy and resource stocks, where valuation risk is limited.

(Updates with Oppenheimer AM’s comments in paragraphs 9 and 11)

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