for the TLDR crowd…Markets go up and also go down.
“We expect markets to transition into a ‘Hope’ phase of the next bull market at some point in 2023, but from a lower level,” said a team led by Goldman’s chief global strategist Peter Oppenheimer, in a note to clients. “The initial rebound from the trough is likely to be strong, in common with the beginning of most cycles before transitioning into a ‘Post Modern Cycle’ with lower returns.”
Catching the “hope” phase just right is indeed tricky. Their above chart shows how average returns overall in the following 12 months are much higher if an investor waits one month until after the trough as opposed to investing a month before.
Also during that phase, initial recovery trends tend to be led by assets that have underperformed the most during the bear market phase. “This is what makes these transitions so difficult to navigate — the recovery when it comes tends to be swift and led by the types of companies that investors tend to avoid through the bear market.”
“That said, this is ‘the trade after the trade’ and we think it is premature to be positioning for this now” said Goldman, urging investors to hold their horses.
As for right now, strategists are all in on a “barbell approach,” which means investing across the risk spectrum with the goal of getting a more even portfolio. Their mix consists of quality, strong balance sheet and stable margin companies, with deep value, energy and resources where valuation risks remain limited.
“We like companies that can compound earnings and returns through a combination of reinvestment and dividends over time,” he said, adding that in contrast to the last cycle, they want more diversification across styles and regions and more emphasis on valuation, which should “enhance returns through 2023.”
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