Goldman Sachs: The forecast for the economy and markets in 2022

Goldman Sachs’s Consumer and Wealth Management arm in its 2022 forecast says it will be a great year for Value stocks, while the broader S&P 500 index will see a single-digit increase of 6.3%.

The New York-based giant is bullish on energy stocks but also on health stocks and recommends overweight commodities and financial institutions, mainly in the Eurozone. Goldman Sachs remains bullish on US stocks and bearish on (unattractive) cash and bond yields.

Goldman’s 6.3% yield forecast for the S&P 500 is more subdued than last year’s strong 26.9% and 16.1% in 2020, but there are a number of uncertainties that could work against the stock this year.

Brett Nelson, head of Regular Asset Allocation, told Forbes that Goldman Sachs sees an 85% chance of the S&P 500 moving higher in 2022, with the coronavirus pandemic at the heart of much of the uncertainty.

The Fed’s monetary policy is also closely monitored. Goldman Sachs expects at least three interest rate hikes of 25 basis points, but is optimistic that higher valuations, partly justified by lower interest rates, will have room to “run” before facing upward pressure.

Examining the historical data, Nelson told reporters that if interest rates rose to 5%, it would be a difficult environment, as they would outperform both inflation and growth.

Goldman expects the year to end with 3.1% unemployment in the US, lower than the current rate of 3.9%. It also forecasts a significant decline in inflation with expectations for a consumer price index to 3.4% for December 2022, a significant de-escalation from 7% last December.

Nelson points out that much of his company’s expectations for value-for-money over-growth stocks are coming true in the first two weeks of 2022, as technology stocks and other growth stocks struggle, while energy and other value stocks outperform, while A 10-year US government bond has risen sharply in the last month.

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