In the near term, Goldman Sachs Group Inc. is less bullish about stocks, as well as other large banks, and says markets have not yet considered the possibility of a worldwide recession.
Goldman strategists are going to reduce equity exposure to Underweight over the next three months while maintaining an Overweight position in cash, citing real rates as the main impediment.
In a Monday note, Goldman strategists wrote that current levels of equity valuations may not fully reflect related risks and may have to decline further to reach a market trough.
Goldman s market-implied recession probability has risen to above 40% after the recent bond sell-off, which historically has indicated elevated equity drawdown risk.
The MSCI World Index has lost more than $8 trillion in value since its mid-September peak due to a rise in U.S. yields and the currency, but there is no relief in sight.
Recent increases above 98% in a global recession probability model by Ned Davis Research signaled a devastating recession.
The firm said the firm's only other times it has reached that level were during severe downturns in the past, such as those in 2020 and 2008.
The days of the TINA -- There Is No Alternative mantra for stocks is over, Goldman wrote. The acronym TINA is used by investors to justify a lackluster performance of stocks on the basis that other asset classes offer even worse returns.
Since the global financial crisis, lower yields have enhanced the appeal of stocks, but investors now face TARA There Are Reasonable Alternatives with bonds seeming more appealing, Goldman argued.
Goldman's negative outlook was a result of the US strategists' reduction of their S&P 500 Index year-end forecast from 4,300 to 3,600 last week.
Similar expectations have been lowered by Europe strategists who revised their projections for the Stoxx Europe 600 Index's 2023 earnings-per- share growth to - 10% from zero.