Goldman Sachs Predicts Resilient U.S. Stock Market Despite Recent $4 Trillion Sell-Off

Goldman Sachs strategists remain optimistic about the U.S. equity market, predicting resilience despite recent $4 trillion losses, citing private sector strength and easing monetary policy as key factors.

Goldman Sachs Group strategists have offered a more optimistic outlook for the U.S. stock market, despite a recent $4 trillion sell-off. Led by Christian Mueller-Glissmann, the team asserted that the chances of a full-blown recession are low, largely due to the resilience of the private sector and the expected easing of monetary policy. These factors, they believe, will prevent the market from plunging into a severe bear market, Bloomberg reported.

The strategists acknowledged the presence of potential headwinds, including high valuations, mixed economic growth, and ongoing policy uncertainty. However, they emphasized that historical data shows severe corrections in the S&P 500 Index, defined as drops of 20% or more, have become less frequent since the 1990s. This is due to longer business cycles, lower macroeconomic volatility, and proactive interventions by central banks.

Despite this positive outlook, Goldman Sachs remains cautious, maintaining a tactically neutral stance on asset allocation, with a slight preference for riskier assets. This prediction follows a turbulent period during which global stocks lost over $4 trillion in market value in the largest sell-off in two years.

The note from Goldman Sachs arrives as the total annual interest on U.S. federal debt surpassed $1.1 trillion in the second quarter of the year, with daily interest payments reaching a record $3 billion. The Federal Reserve’s interest rate hikes, which began in 2022 to curb inflation, reached 5.5% in 2023, though the market is now anticipating a potential rate cut this month. Meanwhile, the U.S. national debt continues to climb, surpassing $35.3 trillion.

A particularly notable sell-off occurred recently when U.S. equities lost over $1 trillion in a single trading session. Tech giants like Nvidia (NVDA), which had been benefiting from bets on AI growth, saw its market capitalization drop by over $360 billion, exacerbated by after-hours trading.

The tech sector’s troubles were compounded by sluggish manufacturing activity, as two key indicators showed continued slow growth, largely due to elevated interest rates. Investors are now awaiting the release of the U.S. August jobs report later this week, which could add further volatility to an already uneasy market. Last month, a higher-than-expected unemployment reading triggered a stock market pullback.

Adding to the uncertainty is the “September Effect,” a phenomenon in which September has historically been the only calendar month with consistently negative returns in the stock market over the last 98 years, according to Investopedia.

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