over 3 years ago • 2 mins
The US stock market hit a record high in February before collapsing into the fastest bear market in history in March. Since the trough though, US stocks have risen 35%, surprising Goldman Sachs analysts.
Three weeks ago, Goldman predicted that the S&P 500 would fall by almost 20% to 2,400 in the next three months given weak corporate earnings and ongoing coronavirus concerns. But between the Fed’s supportive monetary policy, government stimulus, large companies boosting markets, and renewed optimism about the reopening of the economy, rather than fall the S&P 500 instead rose another 4%.
In updating its analysis, Goldman’s analysts acknowledged the key US stock market index, which is currently trading at around 3,048, isn’t likely to hit its pessimistic short-term target – and that a 10% drop from current levels to 2,750 was now a more realistic downside scenario.
Although Goldman is now slightly more positive, it’s actually not all that optimistic about US stocks for the rest of this year. The investment bank’s year-end target for the S&P 500 is pretty much at its current level, suggesting there isn’t much upside for investors. Even the bank’s most positive prediction only sees a 5% return for stock market investors between now and December.
Investors, then, might be wise to focus on the risks ahead as they appear to outweigh the potential opportunities. In that regard, Goldman thinks the concentration of large companies currently propping up the S&P 500 could give way and bring markets crashing down, as might the risk that fewer buybacks result in less demand for shares overall.
On the macro side, analysts warn that a second wave of coronavirus requiring economic lockdowns could send markets into a tailspin, that companies might be slow and cautious in their rehiring and spending in turn leading to a slower-than-expected economic recovery, or that trade disruption between the US and China could disrupt to global companies’ earnings as it has done in the past.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.