Goldman Sachs sees a tougher path ahead for stocks after a rocky February. The S & P 500 shed more than 1% last month, while the Dow Jones Industrial Average lost 1.6%. The Nasdaq Composite dropped 4% in February, its worst monthly performance since April 2024. Those losses came as investors worried about the impact of potential U.S. tariffs on Canadian and Mexican imports, and retaliation against U.S. exports. On top of that, recent data points to sticky inflation and a possible slowdown in the broader economy. “We continue to expect equity returns will be more modest than last year and match the trajectory of earnings growth,” wrote David Kostin, chief U.S. equity strategist at Goldman. The S & P 500 jumped 23% in 2024 after soaring 24% in 2023. Kostin lowered his 2025 earnings per share growth forecast on the S & P 500 to 9% from 11%, though he maintained his year-end target on the benchmark at 6,500. That implies upside of 9.2% from Friday’s close. “Our Sentiment Indicator stands at -0.4, substantially below the highs in late November but above levels that have historically signaled tactical upside as a result of depressed positioning. As a result, we believe an improvement in the U.S. economic growth outlook will be required to fully reverse the recent equity market rotations,” he added. Indeed, investors have been rotating out of megacap technology issues and into safer parts of the stock market. Tesla is down more than 23% in the past month, while Alphabet and Amazon have lost 15% and 10%, respectively. The consumer staples and real estate sectors, meanwhile, have risen more than 4% in the same time. TSLA XLP 1M mountain XLP vs TSLA in past month Against this backdrop, Kostin advised clients to buy the S & P 500 health care sector, noting it “offers a defensive tilt and trades at historically low valuations despite outperforming the market” by 7 percentage points so far in 2025. The sector trades at 18 times forward earnings, according to FactSet. That’s below the S & P 500’s multiple of 22. Some of health care’s top performers this year include Gilead Sciences , Abbott Laboratories and Eli Lilly . Gilead and Abbott are up more than 20% each in 2025. Eli Lilly has climbed more than 19%. Elsewhere Monday morning on Wall Street, Morgan Stanley upgraded Chipotle Mexican Grill to overweight from equal weight. The bank said the fast casual burrito chain is due for a comeback. “A quality large cap growth compounder seeing some slowing with the stock flat to 12 months ago — what’s not to like? We’ve always appreciated CMG’s strengths and think many are set to continue,” analyst Brian Harbour wrote in a note to clients. “An entry point has presented itself, in our view.”
Where to go as stock market gains slow, according to Goldman Sachs
Mar 3, 2025
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