Goldman strategists led by David Kostin stated in a report on Friday that the underperformance of cyclical stocks this month indicates fear that the recent tightening of financial conditions may stifle economic development. However, the firm believes that the US economy will continue to be rather robust, so businesses in industries like financial services, electronics, and materials may still do fairly well.
The analysts stated, “We would view a substantial further downgrade to the growth outlook as a buying opportunity, even though we expect headwinds to discount rates and balance sheets to persist.”
This occurs when the Federal Reserve kept interest rates higher for longer in an effort to combat inflation, and the 10-year Treasury yield crossed the 5% mark on October 23 for the first time since 2007. The same day, Lori Calvasina, a strategist at RBC, stated that it is unlikely for the wider market to stabilise until the rise in rates stops. Higher interest rates might be hurting US profitability, as Kostin predicted earlier this month. Moreover, strategists at Morgan Stanley and JPMorgan Chase & Co. have cautioned that the outlook for earnings looks to be declining.
According to Kostin, the S&P 500 will close the year at 4,500, which is somewhat higher than the 4,370 average of strategists that Bloomberg tracks. The gauge’s closing value on Friday was 4,117.37, a 10% decrease from its peak set in late July for 2023. Kostin stated that the benchmark’s high value was fair and may grow further until year-end, just a few days before it reached that top.