Goldman Sachs: US stocks have limited room to rise, and the Japanese and Indian stock markets are more favorable

Zhitong Finance ·  Mar 28 08:28

Source: Zhitong Finance

Goldman Sachs Asset Management tends to think that the current valuation of the US stock market is reasonable, but there is limited room for these valuations to rise.

Zhitong Finance learned that Goldman Sachs Asset Management (GSAM) said that given the current macroeconomic context, the US stock market “has limited upside” and investors should look for better opportunities elsewhere. The company indicated that there will be more room for growth in the Indian and Japanese stock markets. On Wednesday, the three major US stock indices closed higher.$S&P 500 Index (.SPX.US)$A new closing record was set.

Over the past two years, in the face of the Federal Reserve's aggressive monetary policy tightening, the US economy unexpectedly remained resilient, breaking expectations of a recession in 2023. Although GSAM's basic prediction is that the Federal Reserve will guide the economy to a soft landing and the US economy will avoid recession, James Ashley, head of international market strategy at GSAM, said on Wednesday that if a recession does occur, it will be this year.

Ashley pointed out, “The Federal Reserve didn't start raising interest rates until March '22, so when we talk about the risk of a recession in 2023, this will assume that monetary policy is transmitted to the real economy very fast. In other words, it's too early. There is usually a lag of about two years in the operation of monetary policy, so if you see a recession, this is an 'if' statement (our base presupposition is that there will be no recession), but if a recession does occur, it will be 2024, not 2023.”

At the March meeting, the Federal Reserve kept interest rates unchanged in the target range of 5.25-5.5%. The market currently expects the Fed to cut interest rates by 25 basis points for the first time in June. In light of falling inflation and the economic slowdown, the Federal Reserve began easing its restrictive monetary policy.

Ashley pointed out that for the stock market, “slight weakness is your friend” because the relevant anti-inflationary pressure has enabled the Federal Reserve to start cutting interest rates, but since the market has absorbed many expected easing policies, GSAM still believes that the recent bull market may come to an end. Ashley said, “We do tend to think that the current valuation of the US stock market is reasonable, but there is limited room for these valuations to rise. Better opportunities may be in other markets.”


Ashley said that in terms of emerging markets, GSAM sees India as a “strategic long-term growth story.” “We are seeing many other economies start to slow down due to long-term and cyclical reasons, but in India we are seeing a very significant rise start,” he said. In the foreseeable future, we are seeing an economy where nominal GDP is likely to grow in double digits.”

However, given the recent rebound in the Indian stock market, Ashley acknowledged that people cannot say that the Indian stock market is currently “cheap,” but he insisted that “there is still a lot of room for improvement based on this growth story.”

“I think this is a comprehensive story,” Ashley said. It's not a specific industry, and if you take a look at small and medium stocks in particular, you'll find that there is a huge opportunity to have an alpha effect in this market.”


Most central banks in major economies are deciding when to start cutting interest rates. In contrast, the Bank of Japan raised interest rates for the first time in 17 years last week, finally ending tests of negative interest rates and unconventional easing instruments. These tools were previously designed to re-inflate the world's fourth-largest economy. The Japanese stock market performed strongly in 2023 and this year, but Ashley believes that this major shift in monetary policy means they have more room to rise.

Ashley said, “Japan is a major economy, and inflation is not a problem, but a solution. This is a solution to a 30-year deflation problem. The Bank of Japan's goal now is “not to contain inflationary pressures,” but to “accept them.” From a stock perspective, this meant that the company suddenly had more pricing power. So, when we look at developed markets now, in our opinion, Japan is the most attractive in both the short and long term, so we think Japan still has a lot of room for growth.”


The translation is provided by third-party software.

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