Bear market in global equities not over, says Goldman Sachs

The bear market in global equity markets is not over, Goldman Sachs said in a strategy note on Monday.

"The conditions that are typically consistent with an equity trough have not yet been reached," the bank said.

"We would expect lower valuations (consistent with recessionary outcomes), a trough in the momentum of growth deterioration, and a peak in interest rates before a sustained recovery begins."

GS said the recent rebound in equities is not the first we have seen in this bear market. The speed of the rise in interest rates - rather than their absolute level - has the potential to do more damage as investors are likely to increasingly focus on growth and earnings weakness.

"We continue to think that the near-term path for equity markets is likely to be volatile and down before reaching a final trough in 2023. So while near-term risks are to the downside in global equities, it is likely that they enter a ‘Hope’ phase in 2023; we expect overall returns between now and the end of next year to be relatively low," it said.

GS said it continues to focus on a barbell approach: combining quality, strong balance sheet and stable margin companies with deep value, energy and resources, where valuation risks are limited.

The bank likes companies that can compound earnings and returns through a combination of reinvestment and dividends over time.

"In contrast to the last cycle, more diversification across styles and regions, as well as a greater focus on valuation, should enhance returns over the course of 2023," it said.