marrio31 There are three reasons why the recent rally is on shaky ground and longer term investors should be wary of soft landing speculation, Goldman Sachs says. “If resilient economic activity data catch down to the more negative recent survey data and investors assign increased likelihood to a hard landing scenario, US equities would face meaningful downside,” equity strategist David Kostin wrote in a note. “We estimate the S&P 500 (SP500) (NYSEARCA:SPY) would fall to 3150 in a recession scenario, driven by a combination of falling earnings estimates and a much lower P/E multiple (14x vs. 18x today).” “This would represent a nearly 25% decline from the current level,” Kostin said. “Beyond recession, another downside risk is that inflation continues to slow, but fails to approach the Fed’s target. This dynamic could lead to even tighter monetary policy and higher interest rates.” Goldman still has confidence in a soft landing given recent macro development and has raised its three-month S&P 500 (IVV) (VOO) (SPLG) target to 4,000. But there are three reasons Kostin said the index is unlikely to end the year substantially above 4,000: Even “if a soft landing comes to fruition, as in our baseline forecast, such an outcome should not lead to substantial equity market upside.” “Valuations are already elevated versus history and will be constrained by an eventual rise in interest rates … The current P/E multiple ranks in the 87th percentile since 1976. Relative to real interest rates, the valuation of the S&P 500 ranks in the 84th percentile.” “S&P 500 earnings are unlikely to grow much this year or next, even in the case of a soft landing. Our baseline EPS forecast is for 0% EPS growth in 2023 and 5% in 2024, compared with consensus of 1% in 2023 and 12% in 2024.” See S&P contributor Fred Piard’s S&P 500 dashboard.
