(Bloomberg) -- The brisk rally in US stocks over the past month may be as good as it gets this year, according to Goldman Sachs Group Inc. strategists.

After gaining more than 7% so far in 2023, the S&P 500 now accurately reflects signs of better-than-expected economic growth and a drop in bond yields, strategists led by David J. Kostin wrote in a note. At the same time, higher valuations, lackluster corporate earnings and elevated interest rates mean there’s little room for the rally to extend, they said, a view that was broadly echoed by their counterpart at Morgan Stanley, Michael Wilson.

The Goldman strategists raised their 3-month target for the benchmark index to 4,000 points from 3,600 — but that still implies a 3% decline from Friday’s close. They also maintained their end-2023 target at 4,000, suggesting no more upside for the index for the remainder of the year.

Kostin — who was relatively bearish on US equities through 2022 against the backdrop of slowing growth — isn’t alone in his view that stocks face another tough year after their worst annual performance since 2008. Morgan Stanley’s Wilson — ranked No. 1 in last year’s Institutional Investor survey — said in a note on Monday he doesn’t believe the recovery since an October low represents a new bull market, even though investor sentiment has improved.

Bets of a resilient US economy, signs of easing inflation and optimism of a slowing in Federal Reserve interest-rate hikes have spurred risk appetite. Still, Kostin warned that “the substantial downside risk” to stocks in the event of a recession makes for a “challenging distribution of outcomes for US equity investors.”

The Goldman strategist said alternatives to US equities — including cash, credit, and non-US equities — were now more attractive. His counterparts at JPMorgan Chase & Co. agree that international markets continue to screen as “much more interesting” than the US amid more expensive domestic valuations, they said in a note on Monday.

The S&P 500 fell 0.6% Monday as concern over geopolitical tensions between the US and China weighed on market sentiment and after Friday’s unexpectedly strong jobs report sparked worry over further rate hikes from the Federal Reserve.

--With assistance from Farah Elbahrawy and Norah Mulinda.

(Updates for stock market open.)

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