Goldman Forecasts Rally Over
Goldman Sachs’ Chief US Equity Strategist, David Kostin, recently warned that the US equity market is overpriced, and the current rally is not supported by earnings growth. In his note, Kostin lifted his year-end S&P 500 price target to 4,000 from 3,600, but warned of the debt-ceiling debate that could pose a key risk to the market. The S&P 500 is currently trading at 4,111, having risen 7% year-to-date.
Kostin is not alone in his cautious outlook. Many investment professionals are concerned that the market is pricing in too much optimism, despite the current earnings season being disappointing. The blended earnings decline for the S&P 500 for the fourth quarter is tracking at 5.3%, which, if holds, will be the first year-on-year earnings decline since the third quarter of 2020.
The current rally in the US stock market is also taking place in the context of a Federal Reserve that is trying to combat inflation through interest rate hikes. While the Federal Reserve is expected to pause its rate increases this year, the timing is uncertain, and investors are facing the possibility of multiple more rate hikes that could slow the economy and compress stock valuation multiples.
American Corporations are facing declining profit margins, which is putting pressure on earnings growth. Big household name companies, such as Apple, Meta, and Starbucks, have not only missed fourth-quarter earnings estimates but have also given cautious forward-looking commentary.
The combination of potential rate hikes, pressured corporate profit margins, and disappointing earnings is causing some investment professionals concerns. The current market rally and valuation is pricing inflation to come down, and avoiding a recession altogether, in addition to federal banks cutting rates starting mid 2023. As a result the current valuation is basically “priced for perfection.”
Despite the caution, Kostin still believes that there are alternatives to US stocks that offer superior risk-adjusted returns, such as non-US stocks, credit, and cash. However, Kostin’s warning should be heeded by investors who are looking to put their money in US equities. With elevated valuations and an uncertain economic outlook, investors should consider their risk tolerance and investment goals before making a move.
While the US stock market has had a solid start to the year, investors should be cautious of the overpriced market and the potential risks posed by interest rate hikes and declining earnings growth. Alternatives such as non-US stocks, credit, and cash may offer superior risk-adjusted returns, and investors should carefully consider their investment goals and risk tolerance before making any moves.
GS Stock Price Forecast & Analysis
According to 17 stock analysts, the average target price for Goldman’s stock is USD 396.08 for the next 12 months. The average analyst rating for the company is “Buy”. Stock Target Advisor has a slightly bearish outlook on the company, with 3 positive signals and 7 negative signals. The last closing price for Goldman Sachs Group Inc’s stock was USD 369.95. The stock’s price has increased by 4.59% over the past week, 7.62% over the past month, and 0.64% over the last year.
STA Research (StockTargetAdvisor.com) is a independent Investment Research company that specializes in stock forecasting and analysis with integrated AI, based on our platform stocktargetadvisor.com, EST 2007.
