Goldman Sachs Outlines Expectations For S&P 500: Where Will Index Be On Dec. 31, 2023?

Goldman Sachs Group Inc GS outlined its perception of recessionary risks and positioning in the market, along with sharing base case scenarios for U.S. equity returns in the event of a recession, during a strategy call on Tuesday.

What Happened: The investment bank has estimated the risk of a recession in the U.S. at between 45% and 55%, but stated that it still expects the S&P 500 SPY to post gains by the end of 2023.

Goldman's base case for the S&P 500 for Dec. 31, 2023, is between 4,200 to 4,300, with a probability of 50%. This includes the scenario of a soft landing or mild recession, with the market recovering by the end of the year.

The bank also highlighted that even if the U.S. enters a mild recession, history shows that the S&P 500 can still post gains by year-end.

"In fact, if you go back to 1980, that’s exactly what you saw...This was a period that actually had higher inflation than we have today, yet the S&P 500 still finished that year with 26% gains." said Brett Nelson, Goldman's head of tactical asset allocation.

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The bank also mentioned that the odds of a gain in 2023 given the rarity of two consecutive down years for the S&P 500 is 83%.

Goldman's optimistic case for the S&P 500 for December 31, 2023, with a probability of 20%, is 4,800.

The bank's pessimistic case for the S&P 500 for December 31, 2023, with a probability of 30%, is 3,600, indicating that the market is still facing a recessionary overhang.

How is Goldman positioning itself in 2023?

The bank also revealed that it is relying on the "60/40 portfolio" strategy, which is 60% allocated to equities and 40% to bonds, though its actual position is closer to 50/50.

Goldman noted that the 50/50 portfolio has historically given 10.6% returns in the year following a bear market and takes an average of 10 months to recover.

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