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.
