(Markets Insider) Banking giant Goldman Sachs has downgraded S&P 500 target again to 4,700 from the previous 4,900, following a deteriorating outlook on Wall Street.
Goldman attributes the lower target due to a fall in positive outlook in the US stock market as commodity prices rise, together with slowing economic growth that could hit the corporate earnings in the year.
The target drop happened after another downgrade by the banking giant in which it set the target to 4,900 from 5,100 in February.
Goldman says S&P 500 could generate $221 earnings per share this year, an increase of 5% year-over-year. The bank says excluding the energy sector, which is benefiting from the recent surge in commodity prices, S&P 500 could grow its earnings per share by only 2% this year.
In the midst of poor market liquidity, Goldman says highly liquid assets have underperformed the less liquid ones, a situation which usually occurs during market sell-offs and environments of tightening financial conditions.
The banknotes that reduced earnings, combined with valuation multiples, could force a 15% decline in S&P 500 to 3,600. The price is in line with the median historical peak-to-trough fall of 24%.
Goldman still recommends that it could be time to buy S&P 500 if the current correction is a typical dive. The strategists say 10%+ corrections are good opportunities on S&P, with 12-month returns as high as 15%.
The strategists gave an overweight rating on energy and healthcare defensive stocks, as well as dividend stocks which carry an added layer of protection.
The rating and target happen when Goldman has indicated a 40% change of a recession in the US economy, a further risk factor in the country’s stock market.
S&P 500 is up +0.82%
