Goldman Sachs tapers call for stock-market drop

Goldman Sachs has thrown in the towel on its forecast for a sharp selloff in U.S. stocks.

Strategists led by U.S. equity chief David Kostin no longer believe the S&P 500 will fall more than 20 percent from Friday’s closing level of 3,044 to 2,400. Instead, they see the potential low capped at 2,750 and predict the index could rally as high as 3,200.

Ticker	Security	Last	Change	Change %
SP500	S&P 500	6042.78	+10.40	+0.17%

“The magnitude and persistence of the index recovery has certainly surprised us,” Kostin wrote, adding that monetary and fiscal support will “limit the downside to roughly 10%.”

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A deluge of monetary and fiscal stimulus programs have powered the S&P 500’s 36 percent rally from the March 23 low of 2,237.

The benchmark index hit that marker after a 34 percent plunge from its February 19 peak of 3,386 as stay-at-home orders designed to slow the spread of COVID-19 resulted in the temporary closure of nonessential businesses and elimination of most travel.

As a result of the shutdowns beginning in mid-March, the U.S. economy shrank 5 percent during the first three months of the year, according to the most recent estimate from the Commerce Department. All of the major Wall Street banks expect a contraction of at least 30 percent during the second quarter as more than 40 million people have filed new jobless claims since the lockdowns began at the end of March.

Both the Federal Reserve and Treasury Department, however, have taken unprecedented actions to help the U.S. economy through the contraction, its steepest since the World War II era.

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The Fed has slashed interest rates to nearly zero, pledged to buy an unlimited amount of assets and rolled out a number of lending facilities to extend credit to the households and businesses most in need. Treasury has already doled out more than $2 trillion in the form of stimulus payments.

Ticker	Security	Last	Change	Change %
FB	NO DATA AVAILABLE	-	-	-
AAPL	APPLE INC.	237.33	+2.40	+1.02%
AMZN	AMAZON.COM INC.	207.89	+2.15	+1.05%
GOOGL	ALPHABET INC.	168.95	-0.28	-0.17%
MSFT	MICROSOFT CORP.	423.46	+0.47	+0.11%

Investor positioning has been neutral to low throughout the rally, Kostin said, suggesting there could be another 5 percent upside to 3,200.

The firm points to “achievable” 2021 earnings forecasts and the potential for broader participation in the rally from economically-sensitive companies despite having more challenges in their markets.

The five biggest S&P 500 members – Alphabet, Apple, Amazon, Facebook and Microsoft have gained 15 percent so far this year, while the remaining 495 companies have fallen 8 percent.

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Kostin has set a year-end S&P 500 target of 3,000. Risks to the firm’s forecast include both positive and negative developments related to COVID-19, a slow bounceback for the labor market, increased tensions between the U.S. and China and the 2020 election.