By Sam Boughedda
In a note to clients Thursday, Goldman Sachs analysts said that the path for nominal and real interest rates "will be central to the returns for 2023."
In the note, focused on what to watch in 2023, Oppenheimer said its economists expect inflation to ease this year, but persistent higher wage growth and "the recent easing of financial conditions could push the Fed and other central banks to higher peak rates than currently priced." This would push valuations lower, the analysts argue.
Goldman Sachs is also watching the pace of growth, earnings momentum, and margins in 2023.
"Valuation mattered in equity markets in 2022 for the first time since the global financial crisis: generally cheaper markets and sectors outperformed. We expect this pattern to continue at least until interest rates start to fall and relative valuations further mean revert," the analysts added.
"While we expect a turning point in markets this year, the hurdle rate for investing in equities has increased. There is now a reasonable alternative return available in bonds and cash. We continue to expect a relatively 'flat and fat' market environment."