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Clearly, Friday’s huge rally didn’t mark the bottom of this tumbling stock market. One look at the red splashed across stock futures on Sunday night would tell you that.
But is the end of the selling in sight? Not according to David Kostin.
The Goldman Sachs GS, +17.58% chief equity strategist, in a note to clients cited by Bloomberg News on Sunday, says the S&P 500 SPX, +9.29% will likely drop another 10% from Friday’s close.
Furthermore, if the economic impact of the coronavirus crisis worsens, “the combination of thin liquidity, high uncertainty, and positioning” could push the S&P down 26% to 2,000, which is 20% lower than his previous bottom call, according to Bloomberg News.
“The coronavirus has created unprecedented financial and societal disruption,” he wrote, adding that second-quarter earnings per share could be slashed by 15% from the prior year.
This Bloomberg chart shows what Goldman’s bear case looks like:
The Federal Reserve on Sunday, in a bid to lessen that disruption, slashed its benchmark interest rate to zero and implemented a bond-buying program, known as quantitative easing, of at least $700 billion. “The virus presents significant economic challenges,” Fed Chairman Jerome Powell said during a press conference held an hour-and-a-half after the rate decision was announced.
On a positive note, Kostin reiterated that V-shaped recoveries tend to follow “event-driven” bear markets. So, he said he expects the S&P to end 2020 at 3,200. “The lesson of prior event-driven bear markets is that financial devastation ultimately allows a new bull market to be born,” he wrote.
No sign of that bull market on Sunday night, with futures on the Dow YM00, -4.56% down more than 1,000 points. S&P 500 ES00, -4.78% and Nasdaq-100 NQ00, -4.55% futures both were also pointing to a big retreat at the opening bell.
