Markets will shift to a ‘hopeful’ phase next year, and investors would be wise not to miss it, says Goldman Sachs

There is more caution on our call of the daywhere Goldman Sachs’ 2023 outlook predicts a “volatile” descent to the bottom of this bear market, before a more optimistic phase sets in in 2023. And investors will need to time this one well.

“We expect markets to move into a ‘hopeful’ phase of the next bull market sometime in 2023, but from a lower level,” said a team led by the chief global strategist. of Goldman, Peter Oppenheimer, in a note to clients. “The initial rebound from the bottom will likely be strong, like at the start of most cycles before moving into a ‘post-modern cycle’ with lower returns.”

But before investors can enter the hope phase, they need to weather the rest of this bear market, which Oppenheimer and his team still have some way to go, according to Oppenheimer and his team.

They worry about recent renewed optimism about the possibility of a slowdown in interest rate hikes that has seen stocks up around 5% since June, even with US real interest rates up by 85 bps and 10-year yields BX:TMUBMUSD10Y
more than 50 basis points higher since then.

“The recent rebound in equities is not the first we have seen in this bear market. In our view, the speed of rising interest rates (rather than their absolute level) has the potential to do more damage , as investors are likely to focus increasingly on growth and earnings weakness,” Oppenheimer and the team said.

For this reason, they expect overall returns to be relatively weak by the end of 2023, where they see the S&P 500 SPX
ending around 4000. Right now we are stuck in a “cyclical” bear market that typically sees falls of around 30%, lasting 26 months, with 50 months needed for recovery, a said the bank.

Until the balance sheet of 2023, they see the conditions for a recovery beginning to come together. And this suggests that from a lower level, the prospects for a transition to a “hopeful” phase of the next cycle will be strong. Pay close attention here, say Oppenheimer and co: “These recoveries typically start during recessions and are driven primarily by expanding valuations and can be costly to miss.”

Correctly grasping the “hope” phase is indeed tricky. Their chart above shows how overall average returns over the next 12 months are much higher if an investor waits a month after the trough instead of investing a month before.

Also during this phase, initial rallying tendencies tend to be led by the assets that underperformed the most during the bear market phase. “That’s what makes these transitions so difficult to navigate – the recovery when it happens tends to be quick and led by the kinds of companies that investors tend to avoid through the bear market.”

“That said, it’s ‘trade after trade’ and we think it’s premature to position for it now,” Goldman said, urging investors to hold their horses.

At the moment, strategists are all taking a ‘barbell approach’, which means investing across the full spectrum of risk in an effort to achieve a more balanced portfolio. Their mix is ​​made up of quality companies, with solid balance sheets and stable margins, with high value, energy and resources where valuation risks remain limited.

“We like companies that can accumulate profits and returns through a combination of reinvestment and dividends over time,” he said, adding that unlike the last cycle, they want more diversification between stocks. styles and regions and more emphasis on valuation, which should “enhance returns through 2023.”

The steps

ES00 Equity Futures

YM00

NQ00
are under pressure, with bond yields TY00

TU00
Nudge North, CL Oil Price
softer, and the dollar DXY
to win. Asian stocks were mixed, with Hang Seng HK: Hong Kong’s HSI
down 2%.

The buzz

In a surprise move, Walt Disney DIS
brings back its former CEO Bob Iger to replace Bob Chapek after a series of losing quarters. Stocks explode.

China is tightening COVID-19 restrictions after Beijing recorded three COVID-19 deaths over the weekend, the first in six months. Chinese consumer and entertainment stocks suffered the brunt of the losses.

Dell PC Manufacturers DELL
and HP HPQ,
Zoom ZM video conferencing platform
and electronic chain Best Buy BBY
will report this week and may offer some insight into how the PC bust unfolds. Dollar Tree DLTR
and Deere DE
will also report.

San Francisco Fed President Mary Daly will speak on inflation later Monday. On Wednesday we’ll have durable goods orders, weekly jobless claims, manufacturing and services PMI flash data, the University of Michigan consumer sentiment index, including inflation expectations out of 5 years, new home sales, remarks from Fed Chairman Jerome Powell, and minutes from the last Fed meeting.

The best of the web

‘We gather here like a great tribe’: Qatar’s controversial World Cup kicks off

Ukraine plans to evacuate two towns as temperatures drop

Iran now arrests actors who remove the headscarf in protest

Meet the migrant workers who made the World Cup possible

Table

Learn more about China and its battle against COVID-19:

Stock tickers

Here are the most searched tickers on MarketWatch as of 6 a.m.:

Teleprinter	Security Name
TSLA	You’re here
EMG	GameStop
CMA	AMC Entertainment
SAY	waltz disney
AAPL	Apple
NIO	NIO
AMZN	Amazon
DWAC	Acquisition of the digital world
MULN	Mullen Automotive
MONKEY	AMC Entertainment Holdings

Random plays

The climate science circus wants to cheer everyone up.

No beer at the games, but this English fan in Qatar ended up in a palace:

Budweiser, meanwhile, has found a new purpose for all that undrunk World Cup beer:

Need to Know starts early and updates until the opening bell, but sign up here to get it delivered to your inbox once. The email version will be sent around 7:30 a.m. EST.

Listen to the Best New Ideas in Money podcast with MarketWatch journalist Charles Passy and economist Stephanie Kelton