Recession risks, shrinking margins and stubborn inflation — a number of negative factors are making Goldman Sachs pessimistic about any chance of significant gains in the market in 2023. “It is difficult to outline a realistic scenario that drives the S & P 500 substantially higher next year,” David Kostin, Goldman’s head of U.S. equity strategy, said in a note. The Wall Street firm said its base case is that the S & P 500 will fall about 8% from here to 3,600 in the first half of 2023 before rallying 11% to 4,000 by year-end. If the economy goes into a recession, Goldman said, the S & P 500 would decline to 3,150. The stock market has been in turmoil this year as the Federal Reserve started in March to aggressively hike rates and fight runaway inflation. The S & P 500 fell into a bear market, and today stands more than 17% lower on the year. Many fear that those jumbo rate hikes could tip the economy into a recession. Goldman said even without a recession, earnings could fall next year due to more margin compression than it previously expected. The firm noted that S & P 500 companies’ third-quarter reports showed margins contracted year over year for the first time since the pandemic. Meanwhile, there’s also a chance that valuations could surprise to the downside, Goldman said. “Equity valuations would likely be lower than we expect if taming inflation requires the Fed to hike rates more than anticipated,” Kostin said. The Fed has raised its short-term borrowing rate to a target range of 3.75%-4%, the highest level since January 2008. The central bank is widely expected to raise rates by 50 basis points this week. “In terms of upside risks to our forecast, shares would benefit if firms protect margins and grow earnings, but this seems unlikely unless inflation remains high,” Kostin said. “A dovish Fed pivot would represent a tailwind to P/E multiples but seems unlikely unless growth disappoints materially.” Others on Wall Street are also having a hard time being bullish for next year. Wells Fargo said Thursday that it will likely be a “very choppy” market and 2023 will not be a buy-and-hold year.