GOLDMAN SACHS: US stocks could plunge another 20% after falling into a coronavirus-led bear market
- The S&P 500 could fall another 20% before reaching its floor and rebounding through the rest of the year, Goldman Sachs analysts wrote Friday.
- The benchmark index has already been dragged into bear market territory by the coronavirus' "unprecedented financial and societal disruption," the analysts said.
- Continued supply chain issues, weak demand, and investor positioning could drag the index to 2,000 in the middle of 2020, according to the bank.
- Such slumps are typically followed by "sharp rebounds," the firm added, projecting the S&P 500 will close the year near 3,200.
- Watch the S&P 500 update live here.
After three weeks of intense volatility fueled the stock market's fastest ever dive into bearish territory, Goldman Sachs sees plenty more room to fall before prices bottom out.
The S&P 500 can plunge as low as 2,000 before recovering through the rest of the year, the investment bank wrote Friday. The level is the benchmark index's lowest since early 2016 and implies a 20% decline from Monday's open. Such a tumble would also place the index more than 40% below its February 19 peak.
The coronavirus outbreak is responsible for "unprecedented financial and societal disruption," the analysts said, and equities have so far served as accurate leading indicators before the release of relevant earnings or macroeconomic data.
The team led by chief equity strategist David Kostin also lowered the firm's S&P 500 earnings outlook. Goldman adjusted its model to account for a profit recession in 2020 after first projecting 0% profit growth just weeks ago. The firm's new estimate "assumes supply chain disruption, weak US and global consumption, and lower oil prices and interest rates than we previously expected."
The analysts' more hopeful estimate pegged the S&P 500's floor at 2,450 within the next three months, yet Monday's sharp decline already pushed the index below that target. Falling to 2,000 would require a "combination of thin liquidity, high uncertainty, and positioning," Goldman said.
US equities tanked nearly 30% last week to usher in the first bear market in 12 years. Selling began in late February as new coronavirus outbreaks outside China gripped investors. Stocks sank further through March as Wall Street feared the Trump administration wasn't acting fast enough to issue fiscal stimulus and pad the ailing economy.
While equities ended Friday higher, the relief rally was entirely erased in early Monday trading. Stocks sank low enough to trigger a marketwide circuit breaker minutes after the open, bringing the third trading halt in just six sessions.
The outbreak's outsized fallout won't be concentrated in the financial sector, according to a separate Goldman note released Sunday. The bank expects the outbreak and its hit to economic activity to drag the US into a recession in 2020. The country's GDP growth will drag to a stop in the first quarter before contracting 5% in the second quarter, the bank's analysts wrote.
Despite anticipating a steep market decline and lack of profit growth throughout the year, the Goldman analysts still see the resurgence of a bull market before 2021. The firm pointed to both the Russian sovereign debt default of 1998 and 2011's eurozone crisis, where stock market declines were overshadowed by rallies of nearly 30%. Goldman sees the S&P 500 reaching 3,200 by the end of the year, just 5.5% off its all-time high.
"The lesson of prior event-driven bear markets is that financial devastation ultimately allows a new bull market to be born," the analysts said.
The S&P 500 sat at 2,457.99 as of 10:25 a.m. ET Monday, down about 23.7% year-to-date.
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