Stock Market, S&P 500, Technology: The China Shop

Written January 8, 2023, 9:14 am

From Tesla to bitcoin, many asset bubbles have deflated in 2022, the first year since the 2008 financial crisis that valuations have returned to center stage. Their “upgrade”, emphasized by Goldman Sachs, sees the revenge of the curse of the stock market discount for the first time in fifteen years.

This movement will continue until a peak in the interest rate level is reached, which the bank sees as higher than the market (at 5-5.25%). According to her, wage inflation makes the top of companies’ profitability unsustainable. Investors have already begun to value stable margins more than revenue growth.

Information technology (26% of the $32.1 trillion capitalization of the S&P 500 at the end of December, but 21% of profits) should not become the elephant in this china shop.

To note

Goldman Sachs’ baseline scenario for 2023 is zero earnings growth and stability for the S&P 500 index, around 4,000 points by the end of the year.

However, in the event of a hard landing for the economy, the bank does not rule out a low in the index of 3,150 points (ie 18% below its low at the end of 2022, i.e. as much as last fall of the year). According to his calculations, the earnings per stock in the S&P 500 would fall by 11% in this hypothesis, and the multiples (price/earnings ratio) would fall to 14 times versus 17 times currently.

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