According to Bloomberg News, strategists at Goldman Sachs Group Inc. have curbed the target for the S&P 500 index in a month twice, indicating that the returns for the year will be negative, following a commodity crunch globally that is triggered by the ongoing Ukraine war, which has caused a slump in the US stocks.
The strategists headed by David Kostin have stated that the greater risk to S&P 500 index earnings arises from the higher price of commodities and consequently weaker consumer demand and growth in the economy. They have revised the year-end forecast for the benchmark of main US equities to 4,700 index points, which was earlier 4,900. The strategists expect that earnings-per-share might frown by an annual 5% to $221 in the current year 2022, which is down from an earlier estimate of 8% growth which would have been $226.
Bloomberg News reports that the initial year-end target of Goldman Sachs, which was 5,100 points for S&P500, was dropped last month due to a route that was triggered by fears that there will be tightening of policies by the Federal Reserve more aggressively in comparison to what was anticipated earlier so that inflation could be tamed. Since then, there has been an intensification of the sell-off as Russia faces a wave of sanctions. Russia is one of the biggest commodity producers globally, and this Ukraine invasion has worsened the price pressures.
The journey is downhill
The meaning of the recent retreat only means that even if Goldman has a revision in the target, it still perceives an upside of 10% compared to the general levels. However, when an outlook for the entire year is considered, it indicates marginally negative returns for the US stocks, which is again a distant possibility from the 2020 ferocious rally that displayed equities having climbed to record levels.
Bloomberg News reports that it is likely that the worst might still be around, as the behemoths of Wall Street see a 35% recession probability in the next year.
At the current levels, the risk of recession is priced partially, as noted by the strategists of Goldman Sachs. Reduced earnings and owing to valuation multiples, in a downward scenario, it can be expected that it would cause a drop by 15% to around 3600, according to strategists at Goldman Sachs, thereby recommending that in the health care and energy sectors, investors must maintain overweight positions to withstand the storm.
