Breaking Down the Forecast: Why Experts Believe the Stock Market Will Remain ‘Fat and Flat’ in the Current Year

The stock market is still on the rise. The Nasdaq Composite (^IXIC) has seen its best first six months in four decades, while the S&P 500 (^GSPC) has grown by 16% during this same period.

What is the forecasted trend for stocks in the later part of 2023? Analysts at Goldman Sachs predict a steady and stable performance of stocks.

As the Federal Reserve increases interest rates to fight inflation, investors are questioning if the central bank will be able to achieve a soft landing in the US. This refers to slowing down the economy without causing a recession.

Strong economic indicators have prompted Wall Street economists to reassess their forecasts of an economic slump this year.

Goldman Sachs analysts have reported that despite their economists forecasting a smooth slowdown of the US economy and a return to normal inflation rates, enduring uncertainties remain.

Therefore, we predict that shares will remain in their ‘overinflated and inactive’ zone,” penned Christian Mueller-Glissmann and his group at Goldman Sachs in a message to investors on Friday.

In June, experts from Goldman Sachs downgraded their prediction for a US recession in the upcoming year from 35% to 25%. However, Mueller-Glissman and his team warn that inflation could persist, potentially leading to an unexpected shift to a protective approach by central banks.

The Consumer Price Index in June showed a rise of 3% from the previous year, indicating the least yearly growth since March 2021, as revealed by the inflation data.

Economists are discussing whether the central bank will increase rates twice this year due to decreasing inflation and fluctuating economic indicators. Regardless of the economic deceleration, the inflation percentage for June is 3%, surpassing the Federal Reserve’s target of 2%.

Goldman analysts also underscore the uneven global growth figures from China and Europe.

The data received from China for the second quarter has been noticeably disappointing, and the international manufacturing sector’s ongoing difficulties are starting to affect services in the Eurozone, as stated in the memo. It also mentioned that a potential risk in the latter half of the year could be that global Buying Managers’ Indexes (PMIs) may begin to hurt earnings adjustments, especially as inflation begins to level off simultaneously.

Goldman notes a substantial rise in the readiness to invest in shares throughout June.

Prominent technology companies like Nvidia (NVDA) have played a significant role in the strong performance of the markets up to this point. Nvidia notably hit a new record high on Friday.

The value of Apple’s (AAPL) shares has seen a growth of around 50% this year, while Tesla’s (TSLA) shares have surged by an impressive 127% in the same period.

Initially, specialists warned of a narrow range for this year’s surge, but investors have been investigating other alternatives and have achieved their top value in 52 weeks. Even the stocks regularly subjected to short selling also contribute to the surge.