Benzinga - Goldman Sachs Group Inc (NYSE: NYSE: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 (NYSE: SPY (NYSE: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.
Read also: Why The 'Flawless' Recession Indicator May Be Wrong This Time
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.
Now Read: 'I Shouldn't Ever Use The Word Hurricane,' Jamie Dimon Says: Storm Clouds Remain, But The Consumer Is Rolling With The Thunder
© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.