Goldman strategists see value stocks outperforming again in 2023

Goldman strategists see value stocks outperforming again in 2023


Value stocks could shine again this year as steadfastly hawkish central banks keep interest rates elevated and investors flee pricey technology shares, according to Goldman Sachs Group Inc. strategists.

After years of lagging behind their growth peers, cheaper so-called value stocks outperformed in 2022 as major central banks hiked rates to tamp down surging inflation. “As big cap technology sees further margin pressure, commodity prices rise and real interest rates remain higher, we think this trend has further to go,” strategists led by Peter Oppenheimer wrote in a note Thursday.

The strategist is not alone in sounding cautious on technology and other growth stocks, which had led last year’s worst selloff on Wall Street since 2008. Bank of America Corp.’s Savita Subramanian said Wednesday investors should avoid crowded parts of the stock market, including big tech. Morgan Stanley strategist Michael Wilson — one of the most bearish voices on US stocks — also warned profit margins at tech companies are likely to take a hit this year.

Higher rates tend to particularly hurt growth stocks with the frothiest valuations, including technology, as they mean a bigger discount for the present value of future profits. Although valuations slumped last year, Goldman’s Oppenheimer said these sectors remain expensive, while financials and energy are relatively cheaper.

The MSCI World Growth Index is trading at nearly 21 times its 12-month forward price-to-earnings ratio, higher than its 20-year average of 18 times, according to data compiled by Bloomberg. Its value counterpart, on the other hand, trades slightly below its long-term average, the data show. Last year’s outperformance by value over growth was the greatest since 2000.

With Federal Reserve policy makers signaling that interest rates are likely to remain elevated until they see further signs of a cooling in inflation, the outlook for earnings “will be crucial” as stock valuations decline further, Oppenheimer said. Economic growth will also need to sink to a nadir before a sustained recovery in equity markets overall takes hold, he warned.


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