Goldman’s bear case just got a lot more bearish amid ‘unprecedented’ disruption from coronavirus

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Clearly, Friday’s huge rally didn’t mark the bottom of this tumbling stock market, with the Dow Jones Industrial Average more than 2,500 points to start the week.

But is the end of the selling in sight? David Kostin sees the potential for more.

The Goldman Sachs chief equity strategist, in a note cited by Bloomberg News, says 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% from Friday’s close to 2,000.

At last check, the S&P was trading at 2,418.

“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.