Predicting a ‘Fat and Flat’ Stock Market for the Rest of the Year

The stock market continues to surge, with the Nasdaq Composite (^IXIC) experiencing its strongest first half of the year in forty years, and the S&P 500 (^GSPC) increasing by 16% during the same timeframe.

What is the predicted direction of stocks in the latter half of 2023? According to analysts from Goldman Sachs, they anticipate that stocks will remain steady and stable.

With the Federal Reserve raising interest rates to combat inflation, a significant query for investors is whether the central bank can successfully attain a soft landing in the US, meaning an economic deceleration without leading to a recession.

Robust economic figures have led Wall Street economists to reevaluate their predictions for this year’s economic downturn.

Analysts from Goldman Sachs have expressed in their reports that, although their economists still anticipate a situation in which the US economy decelerates gently and inflation levels return to normal, there are nevertheless persistent uncertainties.

Consequently, we anticipate that stocks will continue to stay within their ‘bloated and stagnant’ range,” wrote Christian Mueller-Glissmann and his team at Goldman Sachs in a note to investors on Friday.

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In June, economists at Goldman Sachs reduced their forecast for a US recession in the next year from 35% to 25%. Even so, Mueller-Glissman and his colleagues caution that inflation could be more persistent, which may cause central banks to adopt a defensive stance unexpectedly.

The inflation data for June revealed a 3% increase in the Consumer Price Index compared to the previous year, marking the smallest annual growth since March 2021.

Economists are debating whether the central bank will raise rates twice this year due to slowing inflation and varying economic data. Despite a slowdown, the inflation rate in June is at 3%, which still exceeds the Federal Reserve’s 2% target.

Analysts from Goldman also highlight the inconsistent global growth data from China and Europe.

“Data from China has been significantly underwhelming from the second quarter, and in the Eurozone, a struggling worldwide manufacturing industry is beginning to impact services,” according to the memo. It further stated, “One of the potential hazards we anticipate for the second half is that global Purchasing Managers’ Indexes (PMIs) could start to negatively affect adjustments in earnings, particularly as inflation begins to stabilize concurrently.”

Goldman observes a significant increase in the willingness to invest in stocks during June.

So far, prominent tech firms such as Nvidia (NVDA) have contributed to the positive performance of the markets, with Nvidia reaching another unprecedented high on Friday.

Apple (AAPL) stocks have increased by almost 50% this year, while Tesla (TSLA) has seen a 127% rise in the same timeframe.

At first, experts cautioned against a limited scope for this year’s rally. However, investors have been exploring other options reaching their highest value in 52 weeks. Even the stocks that are frequently shorted are participating in the rally.

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