• ‘Cash right now is looking attractive,’ strategist says
  • Says he expects corporate profit margins to come down in 2023

Peter Oppenheimer, the chief global equity strategist at Goldman Sachs Group Inc., said the US stock market may see more losses as interest rates continue to rise into next year.

Oppenheimer said that stocks typically drop about 30% during so-called cyclical bear markets, suggesting that equity prices have room to fall further. Given that the S&P 500 Index is down about 19% this year, he said “equities can decline by about 10% more” if the US economy goes into a recession.

“I think we’re in a cyclical bear market, which is usually triggered by rising inflation and interest rates and concerns about recession and falling profits,” Oppenheimer said in an interview Wednesday, noting that Goldman isn’t forecasting a recession as its base-case scenario for the US.

“However, I don’t think we’ve yet seen the conditions which we would typically get at the trough of the market,” he said. “Based on our assumptions about when inflation and interest rates peak, it’s unlikely to be before the end of this year.”

Oppenheimer is among a growing chorus on Wall Street warning that the stock market is unlikely to turn around soon as the Federal Reserve pushes through its most aggressive rate hikes in decades to pull down inflation. The tighter financial conditions are dragging down stock valuations and dimming the outlook for corporate profits by threatening to slow the pace of economic growth.

Goldman predicts net profit margins are going to come down over the course of next year, with Oppenheimer saying that the consensus expectation “suggesting that they’re going to be rising is wrong.”

Given the downside risk, he said “cash right now is looking attractive,” as are short-dated bonds. In the US market, Goldman likes stable, relatively defensive growth companies and thinks value companies have become “extremely attractive” as their performance hasn’t matched their strong earnings recovery.

Oppenheimer said the interest-rate hikes are the major focus in markets. 

“Clearly, developments in Europe and in Ukraine are going to be a central focus for investors,” he said. “But the market focus has shifted much more toward the interest-rate cycle and the accelerating pace of rate increases.”

He said the global stock markets that have been hit hardest will recover fastest, which could be fostered by a weakening of the dollar. If that happens, “the dollar returns available outside of the US may start to improve,” he said. “That would include most European markets.”