Zhitong Finance APP learned that recently, Goldman Sachs' stock team lowered its year-end forecast for S&P 500 index by about 16%, and listed the hypothetical situation of the US economy achieving a hard and soft landing in 2023. Strategist David Kostin and his team lowered the target point of the S&P 500 from 4300 to 3600 by the end of 2022. It is reported that after the decision made by Federal Open Market Committee (FOMC) this week, the market currently expects the terminal interest rate of the federal funds rate to be 4.6%, higher than the previous expectation of 3.25%.
In addition, the bank expects that if the US economy softens its landing in 2023, the S&P 500 will reach 4,000 points by the end of the year, and if the economy hardens, it will reach 3,750 points by the end of the year.
Kostin wrote in the report: "The S&P 500 actually reached our previous year-end target of 4300 points in mid-August, but the complexity of interest rates has changed significantly afterwards. The rate hike scenario we now include in the valuation model, supports a price-to-earnings ratio of 15 times (previous forecasts were 18 times)."
In addition, Kostin said that in the past few years, stock valuation and real interest rates have been in sync, but this relationship has recently been misaligned, posing risks to the stock market. Previously, the bank had assumed that the real interest rate at the end of 2022 was about 0.5%, while the current assumption was 1.5%.
In such an environment, Goldman Sachs suggests that investors should now turn their attention to corporate financial reports.
Kostin said: "The inflation index unexpectedly rose in August, which is a key event for macro investors who are paying attention to the path of Fed rate hikes . Similarly, stock investors should pay attention to the third quarter financial report season, and companies that can achieve record profit margins will be closely watched."
Goldman Sachs recommends a defensive allocation amid uncertainty. In case of soaring interest rates, short-term investments will outperform long-term investments, and investors should hold stocks with "premium" characteristics such as strong balance sheets, stable sales growth and high return on capital.
