Goldman’s Oppenheimer Sees U.S. Stock Rally Running Out of Steam

(Bloomberg) — The rebound in equities may not have much further to go, strategists at Goldman Sachs Group Inc. and UBS Global Wealth Management warned on Thursday, as markets in Europe and the U.S. are set to end their first month in the green for this year.

Most Read from Bloomberg

“To be clear, we see little upside now in the shorter term,” Goldman Sachs strategists led by Peter Oppenheimer wrote in a note. Mark Haefele, chief investment officer at UBS GWM, concurred, saying “our base case now is for only modest upside for stocks.”

Both Goldman and UBS GWM have a year-end target of 4,700 index points for the S&P 500, less than 2% higher from current levels for the U.S. benchmark. They also both see the gauge dropping by around 22% to 3,600 index points in a downside scenario.

While developed markets have recouped the losses seen after Russia invaded Ukraine, they are still below their January records. The lackluster performance follows a strong rally on the back of a post-pandemic economic rebound that saw major indexes climb to successive highs.

UBS GWM said its cautious view “partly reflects risks to corporate profits,” while Goldman’s team said “client conversations reveal a notable lack of conviction or enthusiasm for U.S. equities at current valuation levels,” citing a “slowing economy and rising rate environment.”

Generali Investments echoed the pessimism: “We see little value in chasing the March equity market rebound at this level of valuation,” the firm said in its quarterly outlook. “The sharp fall in equity volatility relative to bond volatility is not sustainable.”

Still, while the rally may be running out of steam, both Goldman and UBS GWM see opportunities for investors, with the latter recommending a focus on energy, food, data, and climate — areas which are set to benefit from a renewed focus on security and stability in the aftermath of the war.

Story continues

For Goldman’s team, instead of playing specific styles such as growth versus value stocks, investors must look for individual companies “that can innovate, disrupt, enable and adapt” and focus on margins.

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.