Goldman: We Forecast Further Selling in 2023, Households Could Sell $100 Billion in Equities

October 3, 2022 8:02 AM EDT
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David Kostin, Goldman Sachs' chief U.S. equity strategist, has noted that investor equity positions “remain elevated” once compared to their longer-term history. As a result, Kostin expects to see “further selling” of U.S. equities in 2023.

“Rising interest rates, slowing growth, and increased unemployment will drive households to continue selling stocks,” the strategist wrote in a client note on Friday.

Moreover, foreign investors are also likely to be net sellers of U.S. stocks, while corporates are expected to be the “largest source of equity demand due to strong buybacks and weak issuance.” Similarly, pension funds are also likely to act as net buyers in 2023.

Goldman Sachs forecasts that households could sell as much as $100 billion in equities in 2023.

“Historically, slowing growth and rising unemployment have coincided with household selling of equities,” Kostin added.

Mutual fund tax loss harvesting also represents a tactical downside risk, Kostin warned clients.

“24% of active mutual fund AUM has an October fiscal year end. Funds seeking to reduce their tax liabilities may sell some of their stocks in the coming month. Our long/short Momentum factor has rallied by 12% since early August, suggesting that some tax loss selling may already be under way.”

Finally, the analyst sees upside risk to Goldman’s 3600 year-end target for the S&P 500 in case the macro outlook improves. However, the upside in such a scenario would be “limited”.

“We recommend fading such a rally and think equity market upside will remain capped until inflation is clearly under control. We forecast the S&P 500 would reach just 4000 (+10%) by the end of 2023 in a soft landing outcome. In contrast, if investors price recession, we expect the S&P 500 would fall to 3150 (-13%) before rising to 3750 (+3%) by year-end 2023, meaning the medium-term distribution of equity risks remains skewed to the downside,” Kostin concluded.

By Senad Karaahmetovic

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Goldman Sachs, Standard & Poor's, Senad Karaahmetovic