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Investors should stick with quality stocks against a lackluster macroeconomic growth outlook, according to Goldman Sachs. While Goldman thinks the U.S. will evade a recession in 2024, the firm’s earnings growth forecast for next year is a modest one at 5% and it puts the overall economy’s expansion at 2%. U.S. equity strategist David Kostin expects a year-end target of 4,700 for the S & P 500. All three major indexes have bounced in recent weeks thanks to smaller-than-expected increases in both headline and core inflation readings in October. The hope is that the data will convince the Federal Reserve it’s done enough with benchmark interest rate hikes to consider cutting. Still, investor uncertainty will likely remain an overarching theme into the new year, Kostin said, which is why the strategist suggests the focus on quality stocks into 2024. “Despite our economists’ optimistic US economic growth outlook, it seems likely that investor economic uncertainty will generally remain elevated next year,” Kostin said. “This should support the outperformance of stocks with ‘quality’ attributes such as high profitability, strong balance sheets, stable sales and earnings growth, and low historical drawdown risk.” Here’s a look at some of the quality stocks that made the Goldman list. Microsoft ‘s stock has climbed more than 54% from the start of of the year. The firm has been a key beneficiary of investor interest in artificial intelligence, which has skyrocketed in 2023. MSFT YTD mountain Microsoft stock. The company grabbed headlines on Monday after recruiting former OpenAI Chief Executive Sam Altman to lead its in-house AI push. Altman was ousted as CEO by OpenAI’s board on Friday. In Goldman’s materials basket, paint company Sherwin-Williams made the cut. The stock has climbed roughly 14% from the start of 2023. SHW YTD mountain Sherwin-Williams stock. BMO Capital Markets added Sherwin-Williams to its top pick list on Monday and set a pricet target that predicts roughly 11% upside for the stock thanks to expanding profit margins. Separately, Goldman highlighted growth and cyclical stocks as potential beneficiaries of the mixed macroeconomic outlook. Kostin noted that growth stocks “typically outperform given stable economic growth and interest rates,” while cyclicals “represent attractive tactical investments if economic data surprise to the upside relative to consensus expectations.” — CNBC’s Michael Bloom contributed to this report.
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