There may be little upside left in this stock rally, says Goldman Sachs. Here’s where it advises investors to put their money now.

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After seven straight quarterly wins, the S&P 500 is about to log a 3% loss in the first quarter. The last losing quarter was a COVID-fueled 20% slump in March 2020,

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But a 5% gain for March will make for the best month since October, and the index remains just 4% off its Jan. 4 highs.

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It’s a no mean feat for a market that was ready to cruise into a COVID-19 bounce, but instead got war, surging inflation and a Federal Reserve fired up to increase rates. Our call of the dayfrom a team at Goldman Sachs led by chief global strategist Peter Oppenheimer, warns this stock market’s best days are over for now.

While it’s perfectly understandable that investors may have missed this latest rally, Oppenheimer’s team sees “little upside in the short term” — the team’s end-2022 target is 4,700, just 2% above current levels.

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“We continue to see this as a ‘fat and flat’ market environment — a wider trading range and lower returns than in the post financial crisis era. There remains risks of corrections in an environment in which equities continue to outperform bonds,” the team said.

In the near term, investors should watch second-quarter economic data and coming earnings for signs of trouble. Goldman economists see a 25% to 30% recession at the US over the next year, which could drive the S&P 500 to 3,600, or a drop of 22% from current levels.

As for where to invest now, Goldman brushes aside the growth versus value obsession and says focus on alpha — companies that can innovate, disrupt, enable and adapt. As well, look for companies that can deliver high and stable margins, instead of those with higher-revenue and record-high valuations that were chased in the last cycle.

Also important — building a wall around portfolios using broad diversification across assets, geographies and sectors, ie real estate and commodities. Hedging is also important, and with the VIX volatility index VIX,
+3.67%
Below 20, the S&P 500 puts — an option that offers the right to sell at a specific price by a specific date — are an attractive hedge. Defensive value and high-dividend yield stocks are another area they like.

The latest Wall Street estimate for the metaverse is that it could be a $13 trillion market

Goldman also rattled off several reasons why stocks are holding up:

The buzz

Oil prices CL00,
-5.71%

BRN00,
-5.16%
are slumping on a report that President Joe Biden could announce as soon as Thursday the release of one million barrels of oil a day from the US strategic petroleum reserve. Investors are also waiting on the outcome of an OPEC+ meeting.

Talks between Russia and Ukraine could continue via video on Friday, as Ukrainian President Volodymyr Zelensky said the defense of his country is at a “turning point,” and he pleaded for more help from the US and other allies.

Apple AAPL,
-0.66%
and Facebook parent Meta Platforms FB,
-0.87%
reportedly gave customer data to hackers posing as law-enforcement officials, Bloomberg reported, citing sources. Elsewhere, the newswire reported that Apple is testing memory chips from a Chinese company to power its iPhones.

Warren Buffett’s Berkshire Hathaway BRK.A,
+0.83%

BRK.B,
+0.70%
has been flagged by a climate-watching investor advocate for a lack of transparency on emissions.

With Friday’s jobs report looming, investors will get initial jobless claims on Thursday, along with personal income, consumer spending, the personal-consumption expenditures price index and Chicago purchasing managers index releases.

The Biden administration will now allow a new gender marker on passports, to promote transgender rights.

The markets

Nasdaq-100 futures NQ00,
+0.22%
are pointing to tech gains, while Dow YM00,
-0.09%
and S&P 500 futures ES00,
-0.01%
are mostly flat. Bond yields TMUBMUSD10Y,
2.321%

TMUBMUSD02Y,
2.282%
are dropping, gold GC00,
-0.28%
is under pressure and the dollar DXY,
+0.36%
is higher. Gasoline prices RBJ22,
-4.66%
are also tumbling.

The tickers

These were the top-searched tickers on MarketWatch as of 6 am Eastern Time:

Ticker

security name

GME,
-7.25%

GameStop

AMC,
-12.77%

AMC Entertainment

TSLA,
-0.51%

Tesla

MULN,
+28.94%

Mullen Automotive

NIO,
+1.33%

NIO

HYMC,
-7.72%

Hycroft Mining Holding

AAPL,
-0.66%

Apple

TLRY,
-2.16%

Tilray Brands

NVDA,
-3.37%

Nvidia

SNDL,
-0.95%

Sundial Growers

Random reads

There is no good news for lovers of frozen pizza and packaged ramen.

Eye in the sky. NASA warns of disruptions from a solar flare through Friday.

And it’s World Cup here we come for the men’s US soccer team:

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Credit: www.marketwatch.com /

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