Goldman Sachs is warning the S&P 500 could plummet to 2,000, pushing another 400+ points and down as much as 41% from its all-time high. Goldman, however, expects the S&P to rebound by the end of 2020 back 3,200 as the impact of the coronavirus (COVID-19) releases its grip on the financial markets.
Goldman’s chief equity strategist David Kostin wrote in a note on March 13 to the firm’s clients…
“The swiftness of the bear market has unsettled many young market participants,” “In contrast, veteran investors recalled the rout of Black Monday (October 19, 1987) – when stock prices collapsed by more than 20% in a single day. The lesson of prior event-driven bear markets is that financial devastation ultimately allows a new bull market to be born.”
Last week after an 11-year bull market run, the Dow Jones Industrial Average officially entered a bear market, which is often defined as a 20% drop from its most recent high. The S&P fell into a bear market the following day, completing its 20% decline.
“Kostin wrote further in his report…
“The coronavirus has created unprecedented financial and societal disruption. Equities are a leading indicator because a bear market has occurred without the release of any relevant earnings or macro data. This week, the most frequently asked question from investors was, ‘what is the floor for stocks?”
A board above the floor of the New York Stock Exchange shows the closing number for the Dow Jones Industrial Average, Wednesday, March 11, 2020. Stocks are closing sharply lower on Wall Street, erasing more than 1,400 points from the Dow industrials, as investors wait for a more aggressive response from the U.S. government to economic fallout from the coronavirus.
To be sure, it’s difficult to be precise, given the market’s volatility. According to Kostin wrote.
“A combination of tools suggests the S&P 500 could trough around 2000... But, as noted above, event-driven bear markets are usually followed by sharp rebounds, and we still expect S&P 500 will end 2020 at 3200...”
Kostin also points out in his notes to Goldman that analysts have “been slow” to incorporate the negative impact of COVID-19 in company earnings estimates as the virus has wreaked havoc across industries….
“Analysts are constrained by the uncertainty of the outlook and the dearth of management guidance, but eventual downward revisions will be catalysts for lower stock prices,”
The Dow Jones opened 2,798 points down, 12% even after the Federal Reserve cut interest rates by a full basis point, moving interest rates between ZERO and 0.25% on fears that the global recession will become a U.S. Recession as the coronavirus pandemic grows more ominous.
Even more ominous is Goldman Sachs’s prediction that the economy will shrink in the second quarter by as much as 5%.
This means the United States and the rest of the world could be in a recession on Election Day this November. President Trump, who finally has interest rates at near-zero, may not be President by the rime; the economy benefits from the low-interest rates.
Goldman, after all, is indicating that economic growth will bounce back to 2% in 2021, 3% in 2021, and 4% in 2022. That, of course, will be determined by how bad this pandemic hits the U.S. and how bad the rest of the world fares from the crisis. Anyone betting on a fast recovery could be very disappointed if the upper range of estimates of 96 million infections and 1.7 million deaths in the worst-case scenario here in the United States.