Goldman Sachs has always been the optimistic one among the investment banks on Wall Street , especially for the US economy and US stock . A few months ago, the target price of S&P 500 index 5,100 points.
Now, this old Wall Street investment bank has finally given up. Goldman Sachs admitted that U.S. stock profits are about to begin to decline, and said that if the current trend is in line with the current trend, the S&P 500 index may fall to 3150 points this year.
It is worth mentioning that the current market of is mainly the logic of inflation trading. Investors are generally worried that the US economy will decline, but if the upcoming second quarter report confirms that the profits of US listed companies have begun to decline, then recession trading may replace inflation trading and become the mainstream.
Goldman Sachs warns: U.S. stock profits are about to begin to decline
Goldman Sachs strategy analyst Ben Snider believes that the market's consistent expectations for the profit and profit margins of listed companies in the S&P 500 in 2023 are still "too optimistic", and may perform lower than expected next year.
He further believes that under the non-recession basic situation, the S&P 500 company's EBIT margin will drop by 0.7 percentage points next year.
This is not the same as the current market expectations. The market expects the median to see that the EBIT margins of these companies are expected to increase by 0.6 percentage points next year.
Why are the profit margins of US listed companies being squeezed?
Goldman Sachs believes that there are three main factors: the US financial environment is tightening, cost pressure continues, and revenue growth slows down.
Goldman Sachs analyst Chris Hussey said:
If our model is verified to be correct, we may see a sharp drop in profits in the future. Assuming that expected revenue has not changed, the median stock earnings per share growth may decrease next year from positive 10% to 0%.
Finally, Goldman Sachs said:
We continue to advise investors to focus on stocks with relatively confident in their earnings outlook, including firms with steady growth and the healthcare industry, which have increased profits every time in the past few recessions.
Earlier this month, Goldman Sachs said that historically, during the hike cycle of Feder , U.S. stocks usually have to bottom out and rebound until the Fed relaxes monetary policy. The current U.S. stock sell-off is probably just the beginning.
Research by Goldman Sachs global market strategist Vickie Chang shows that since 1950, the S&P 500 index has fallen by at least 15%. Among them, 11 times the stock market bottomed out and rebounded when the Federal Reserve turned to relaxing monetary policy again.
Since the beginning of this year, the performance of the S&P 500 can be said to be the worst first half since 1932.
However, the Fed's rate hike process is far from over. After the Fed raises interest rates by 275 basis points, the market generally expects that the Fed will raise interest rates by 50 or 75 basis points in July. After that, since the Fed will continue to fight inflation, the pace of interest rate hikes will not stop.
Recession trading is getting closer and closer
This month, many Wall Street investment banks warned investors that the recession is right in front of them.
Canadian Imperial Commercial Bank Chief Investment Officer David Donabedian believes:
I don’t think the market will continue to fall at such a fast pace, but it’s really hard to say that the market has fallen to the end.
He said he discourages customers from trying to "buy on dips" at the moment. He believes that even after a serious sell-off, U.S. stocks still look not cheap:
market earnings forecasts are still too optimistic about the future.
Our feeling is that if the next inflation data is very high again, the Fed may raise interest rates more significantly, which will bring more risks to the US stock market.
Societe Generale U.S. stock director Manish Kabra warned last week that the bear market in U.S. stocks may last longer. he wrote:
Since this year, U.S. stock investors have maintained a mentality of de-risk, defensiveness and lowering valuations, because in the current overall economic downturn, the Fed's aggressive interest rate hike action will cause collateral damage, which is also the reason why we are holding a bearish stance on U.S. consumer stocks, financial stocks and small-cap stocks .
If the Fed fails to control prices, the U.S. economy will fall into a stagflation scenario as it did in the 1970s and may push the S&P 500 to fall 33% from its current level to 2525 points.
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