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Goldman Sachs’ top strategist sees ‘more downside risk’ in S&P 500

on Nov 1, 2022
Updated: Nov 2, 2022
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  • The U.S. economy had more than expected job openings in September.
  • Goldman Sachs' David Kostin shares his outlook on the S&P 500 index.
  • He remains bullish on energy stocks even though they're up 65% YTD.

S&P 500 is trading down on Tuesday after job openings were reported “up” for September despite the Fed’s aggressive attempts to relieve the historically tight labour market.

What does it mean for the U.S. stock market?

According to “JOLTS” – the Job Openings & Labour Turnover Survey, the U.S. economy had 10.72 million job openings in September. That compares to a much lower 9.85 million expected.

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If anything, the data reiterates the need for the central bank to remain hawkish, which, in return, could mean more pain ahead for the equities market, suggests David Kostin – Goldman Sachs’ top strategist.

Unusually, the real rates have moved down, which has led to the equity market rallying about 7.0% or so. That would suggest to me that it’s overvalued [with] more downside risk between now and the end of the year.

Even through the end of 2023, Kostin expects the benchmark index to see only “modest” returns versus now.

Earnings estimates for 2023 are yet to come down

Kostin does expect an economic slowdown next year if not an all-out recession. To that end, he’s dovish on the S&P 500 also because the earnings estimates are still too high for 2023. On CNBC’s “Squawk on the Street”, he said:

I think the risk is that earnings come down. In a hard landing scenario, you could see earnings fall perhaps 11%.

The Goldman Sachs’ strategist continues to see “energy” as a place to hide in an otherwise volatile market, even though the sector at large has already gained 65% for the year.

Solid profits and return to shareholders were among reasons cited for the constructive view on the energy stocks.

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