While the U.S. stock market is doing well in the fourth quarter on the back of expectations for the Fed to adjust the pace of interest rate hikes, Goldman Sachs, a global investment bank, warned that the stock market has not yet reached a low point.
According to CNBC, Goldman Sachs said, “The U.S. stock market is likely to suffer from further headwinds due to rising government bond rates and continued growth uncertainties,” adding, “stock investors should take a defensive stance over the next three months.”
Goldman Sachs explained in a letter to customers that the S&P 500 index will remain at a similar level to this year next year.
Goldman Sachs said, “The S&P 500 rebounded about 12% in the fourth quarter on expectations of the Fed’s pace of interest rate hikes, but an additional upward rally will be difficult amid market uncertainties.”
“Lower valuation, negative growth momentum, and interest rate peaks should appear in the market before the new bullish market begins,” he said. “At some point next year, we will find ‘Hope’ in the market, but stock prices must fall further than they are now to rebound.”
Meanwhile, Goldman Sachs set the possibility of a U.S. economic recession at 35%, and predicted that even if the U.S. economy enters a recession, it will only be at a “mild” level. “The factor that will dampen the global stock market is instability in the financial market rather than the risk of an economic slowdown,” he said. “Recently, concerns about financial stability have been increasing in various asset groups such as real estate, cryptocurrency, Italian government bonds, and interest-rate banks.”
It also advised investors to increase their share of cash and credit and lower their share of stocks and bonds ahead of the new year, and if they want to invest in stocks, they should avoid long-term growth stocks that are less profitable and pay attention to companies that can benefit from elastic margins and slowing inflation