The adage that it “takes two to tango” is spot-on when discussing the U.S. economy this year. Much of Wall Street sees a recession, continued inflation (albeit lower than 2022), more interest rate hikes (which will bring the Federal Reserve’s terminal or final rate to 5.00% to 5.25%) and a host of other domestic and global issues. Those who see things through a more negative lens are the strategists that expect a hard landing for the economy.
A hard landing in the business cycle or economic cycle is when the economy rapidly shifts from growth to slowing growth to flat as it approaches a recession, usually caused by government attempts to raise rates in an effort to tame inflation. Those rates have gone from zero last year to 4.25% to 4.50% this year and will be heading higher.
A new Goldman Sachs research report highlights stocks the firm feels will do well in a soft or hard landing. Note that the strategists at the bank are not as negative as others on Wall Street:
For 2023, most investors expect the US will enter a recession at some point during the year, and most economists have a similar forecast. In contrast, Goldman Sachs economists believe the US will avoid a recession and assign only a 1/3 probability of a downturn. Recent labor and inflation data support the soft landing thesis. But prudent investors should at least consider the implications if a hard landing transpires.
Again, while Goldman Sachs is not as bearish as many, the report also said this about the potential for a hard landing:
The current three-month trend of S&P 500 forward EPS revision sentiment is the most negative reading outside of the 2008 and 2020 recessions. Most portfolio managers expect the US will enter a recession at some point during 2023. Some investors believe inflation will only subside modestly. Consequently, the Fed will be forced to hike more than the futures market currently implies and in the process will tip the economy into recession. Other fund managers expect GDP growth will deteriorate and the Fed will be forced to cut rates before the end of the year. In either event, the US economy would be in recession.
The analysts identified 36 companies that should outperform in a negative environment. We screened the list and found six stocks that are Buy rated at Goldman Sachs and pay dependable dividends. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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