Goldman’s stock market outlook 2023: ‘Less pain but also no gain’

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Goldman Sachs strategists believe the lack of EPS growth will be a stock market highlight for 2023 after this year was “all about a painful valuation de-rating.”

While 2023 will be less painful, they expect “less pain but also no gain.” Goldman’s 3-month price target for the S&P 500 is 3600, the 6-month target is 3900 while the U.S. benchmark index should close the year at 4000.

This projection is based on a belief the Fed will be able to deliver a soft landing for the U.S. economy with the 2023 S&P 500 EPS flat at $224. A hard landing scenario is described as a “distinct risk.”

“Assuming a modest contraction in real GDP growth, earnings would fall by 11% to $200, slightly less than the typical peak-to-trough recession decline of 13%. From a valuation perspective, we forecast a trough P/E of 14x, as real yields fall but the risk premium widens sharply. We expect in a recession the S&P 500 would trough at 3150,” the strategists said in a client note.

Net-net, they advise Goldman’s clients to “remain cautious” given the high risk in case of a recession. The strategists also shared 5 tips on how to navigate 2023.