S&P 500 Could Drop to 3,200 Points in 2020, Goldman Sachs Warns

After a crippling few weeks, Goldman Sachs now predicts the index will end the year at 3200- but they see a bottom at 2000 along the way, 41% down from its historic high. 

In a March 13 letter, Goldman Sachs’ chief equity strategist David Kostin noted, “The swiftness of the bear market has unsettled many young market participants.” At the same time, he said, “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,” Kostin concluded. 

The S&P isn’t alone. In mid-March, the Dow Jones Industrial Average ended an 11-year bull market run when it dropped 20% from its most recent high. The S&P fell into a similar position the next day.

The economic consequences of the coronavirus have been unprecedented. Given that the bear market occurred without any significant accompanying data, equities are one of the best indicators of what might happen next. 

“This week, the most frequently asked question from investors was ‘what is the floor for stocks?'” 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.”  

Currently, analysts trying to puzzle out the situation are limited by the absence of data on the negative impact of coronavirus on company earnings. The uncertainty and novelty of the outbreak further complicates market predictions. 

The Federal Reserve recently released a massive monetary economic stimulus program designed to prevent the further decline of stock futures. However, stock futures continued to open even lower after the Fed’s response, which included cutting interest rates by 75%. The federal interest rate now stands at a range between 0% and 0.25% as fears of recession continue to grow.

Source: Yahoo Finance

Leave a Reply