Goldman Sachs' Four Zones Within Capital Market Coverage, Gives Stock Picks

Goldman Sachs Group Inc GS has outlined four themes for 2023 amid recessionary risks and rising interest rates.

Theme #1: Analysts expect the interest rates to peak by mid-2023. Besides the upside from macro-driven earnings, portfolio repricing benefits, portfolio optimization, and customer cash trajectory/funding structures also provide select upside opportunities.

GS expects growth to accelerate into 2024 as cash sorting headwinds stabilize and fixed maturities reprice higher. Notably, the analysts say the sector’s enhanced earnings power should not be ignored, driving accelerated share repurchases and more inorganic opportunities. 

Stock Picks - Bank of New York Mellon Corp (NYSE: BK), LPL Financial Holdings Inc (NASDAQ: LPLA), Raymond James Financial Inc (NYSE: RJF), Charles Schwab Corporation (NYSE: SCHW).

Theme #2: GS writes that fixed income yields are at the highest level since the global financial crisis, enabling investors to earn mid-to-high single digits returns. 

Meanwhile, institutional investors’ funding status has also improved materially, likely driving more portfolio immunization and manager outsourcing. 

Buy - BlackRock Inc (NYSE: BLK); Sell- Franklin Resources Inc (NYSE: BEN).

Theme #3: Analysts expect Private Credit growth to accelerate, benefiting from some of the most attractive return opportunities since the economic crisis.

Analysts see Apollo Global Management APO, Ares Management Corp ARES, Brookfield Asset Management Ltd BAM, and Blue Owl Capital Inc OWL to deliver the strongest EPS in 2023 vs. Carlyle Group Inc CG, TPG Inc TPG, Blackstone Inc BX, Hamilton Lane Inc HLNE, Stepstone Group Inc STEP that could witness lower EPS.

Theme #4: 2022 marked a record year for volumes across several asset classes. Hence the analysts say YoY growth comps for many trading businesses are difficult into 2023. 

Credit and Longer-dated Rates derivatives products could witness continued volume improvement.

Buy - Tradeweb Markets Inc (NASDAQ: TW), Marketaxess Holdings Inc (NASDAQ: MKTX); Sell - Nasdaq Inc (NASDAQ: NDAQ).