- Stocks have given up some of their gains in August, after starting 2023 on a tear.
- But investors shouldn't fret about the declines, according to Goldman Sachs.
Stocks' disappointing run in August is likely a short-term blip rather than a longer-term trend, according to Goldman Sachs.
In a note to clients seen by Insider, the bank restated its view that $4 within the next 12 months – and said the Federal Reserve is closing in on a dream soft-landing scenario that will help equities rebound.
The benchmark $4 has dropped 2% already this month, while the tech-heavy $4 is down 4% and just suffered its $4.
But "the runway for a soft landing is in sight, and should support risk assets in coming months," Goldman Sachs' chief economist Jan Hatzius said Monday, referring to the $4 where the Fed brings inflation down to its 2% target without triggering a recession.
"The disinflation of the past few months has made us more confident that Fed officials are done hiking rates," he wrote, referring to the fact that $4 has started to cool off as the economy feels the full impact of the central bank's aggressive tightening campaign.
Hatzius also predicted that $4 will soon stabilize as investors factor in the end of the Fed's hiking cycle and realize they've been "overestimating the near-term impact of increased Treasury supply", with $4 in recent weeks.
Steadier longer-term yields would likely boost stocks by reducing the relative appeal of fixed income as a potential alternative.
The economist added that benchmark oil prices, which have jumped around 15% to over $80 a barrel since the start of July, will hold at their current level due to a rise in spare capacity, more activity from international offshore projects, and slowing production cost inflation in the US.
Steadier oil prices would also likely be good news for stocks, by easing investors' worries about persistent inflation.