Goldman Sachs has called time on Wall Street’s 11-year bull run, warning that the coronavirus outbreak and oil crash will send the market tumbling by almost 30 per cent from the record highs set last month.
The Wall Street bank said the S&P 500 will fall to 2,450 over the next three months, a 15 per cent drop from Tuesday’s closing level and a 28 per cent tumble from the peak in February. Goldman’s forecast suggests the US will enter a bear market, typically defined as a fall of at least 20 per cent from a recent high.
“Both the real economy and the financial economy are exhibiting acute signs of stress,” said David Kostin, Goldman’s chief US equity strategist. “We believe the S&P 500 bull market will soon end.” He said the “proximate causes include the global spread of the novel coronavirus and the 43 per cent collapse in crude oil prices.”
Global financial markets have been shaken in recent weeks as investors attempt to determine the extent to which the Covid-19 outbreak will disrupt the economy. Equities have dropped sharply, corporate debt has taken a heavy blow and gauges of volatility have surged. Investors have sought shelter in havens — sending US bond yields to historic lows.
Mr Kostin said in a note to the bank’s clients on Wednesday that earnings per share of the large US companies listed on the S&P 500 index will drop 5 per cent this year. This marks the second downward revision in as many months, as Goldman in February had projected no earnings growth for the S&P 500 this year. Strategists at the bank expect earnings to fall by 15 per cent in the second quarter.
CNBC’s Jim Cramer blasted the U.S. government’s response to the coronavirus on Thursday, arguing “this is the time for radical action.”
They know nothing. We know more than they do, and that’s not acceptable either,” Cramer said.
Cramer said he is worried that multiple companies in the S&P 500 could go bankrupt within four weeks.