Goldman: "S&P 500 May Fall to 3400 Level in Economic Recession"

The S&P 500 index, centered on large-cap U.S. stocks, is forecasted to potentially fall to the 3400 level within the next year due to an economic recession.

On the 21st (local time), according to Bloomberg News, Goldman Sachs predicted that the S&P 500 index will undergo a significant correction within the next year.

Goldman Sachs analysts Cormac Connors and David Kostin stated in an investor memo the previous day, "With high price valuations and overly optimistic growth expectations, investors should consider strategies to hedge against the recent rally in the S&P 500 index."

They added, "Reflecting a recession scenario, the S&P 500 index could potentially decline by 23%." They also forecasted, "The probability of a recession occurring within the next 12 months is 25%, and if this outlook materializes, the index could fall to the 3400 level." The 3400 level of the S&P 500 index is the level from October 2020, before the liquidity rally triggered by the COVID-19 pandemic. The closing price of the index on this day was 4365.69.

Despite warnings that a recession may hit next year, the large-cap-focused S&P 500 index showed a bullish trend, rising 15% compared to the beginning of the year. The frenzy around generative AI acted as a positive factor, driving buying interest in tech stocks and overwhelming macroeconomic headwinds. The S&P 500 index has a weighting of over 25% in large technology stocks.

[Image source=Reuters Yonhap News]

In an investor memo last February, Goldman Sachs stated, "Expectations for corporate earnings are declining, making it difficult to guarantee a sustained rise in the S&P 500 index," and forecasted, "It would be better to buy European or Asian stocks rather than U.S. stocks." However, until this month, the S&P 500's rate of increase has significantly outperformed the major indices of European and Asian markets, proving this prediction wrong.

According to Bloomberg News, Wall Street firms such as Morgan Stanley and JP Morgan Chase still maintain caution regarding further rallies in the S&P 500 index.

However, Goldman Sachs maintained its early this month forecast to raise the year-end target for the S&P 500 index from 4000 to 4500. This represents an approximately 2.5% increase from the current level.