A Confused Goldman No Longer Expects S&P To Drop To 2,400 But Sees No Market Upside Either

Another Goldman forecast is flushed down the drain.

Six weeks after Goldman pulled its knee jerk-forecast following the March crash, in which it saw the S&P sliding as low as 2,000 in the second wave of selling due to "unprecedented policy support", yet expecting the S&P to retest the bottom end of the range,and slide to 2,400 over the next three months, the bank's chief equity strategist David Kostin today said that the market's powerful rebound means "our previous 3-month target of 2400 is unlikely to be realizedas "monetary and fiscal policy support limit likely downside to roughly 10% (2750)." Additionally, Goldman - which urged its institutional clients to be bearish and on the other side of what's left of its prop trading desk - adds insult to injury saying that "Investor positioning has oscillated between neutral and low" (wonder why, when none other than Goldman was expecting a pullback to 2,400 by August less than three weeks ago) and says that it now represents "a possible 5% upside catalyst (3200)" to its year end price target of 3,000.

Explaining his change in sentiment, which incidentally comes one day after JPM's Marko Kolanovic "dialed down" his optimism on equities, Kostin writes that most institutional investors view the 35% rebound in the S&P 500 index from the bear market low as "Unloved, but welcome."

It is unloved because most portfolio managers were not positioned to take full advantage of it. However, it is welcome because most investors are structurally long-biased. The magnitude and persistence of the index recovery has certainly surprised us.

In fact, so bizarre were the "remarkable" were the past 90 days that Kostin dedicates his entire preamble to summarize what happened:

  • On February 19, 2020, the S&P 500 closed at 3386, an all-time high. Roughly three months later, the index stands 11% lower at 3030 and -6% YTD. But point-to-point changes in the level of an equity index do not capture the traumatic medical events, extraordinary economic disruption, widespread social upheaval, and tumultuous path of financial assets that occurred during the intervening 90 days.
  • More than 100,000 Americans have died of COVID-19 according to Johns Hopkins University. The US unemployment rate has surged from a 50-year low of 3.5% to 14.7%, the highest level since the Great Depression. More than 40 million people have filed initial unemployment claims since late February. Goldman Sachs US Economics forecasts the unemployment rate will spike to 25% before ending the year at 12%.
  • S&P 500 troughed on March 23rd after plunging by 34% in 23 trading days. Equities bottomed concurrent with the announcement by the Federal Reserve that it would support the investment-grade bond market and relieve liquidity and solvency pressures threatening many US firms. Congress also acted swiftly and passed the CARES Act that extended support to small businesses and provided extended unemployment benefits to individuals who lost their jobs due to the pandemic.
  • The index has rallied by 35% during the past 46 trading days. The S&P 500 index closed at 3030 on May 28th and now trades just 11% below its all-time high reached slightly more than three months ago. It has been a remarkable journey.
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