Goldman Sachs warns oil shock could drop S&P 500 to 5,400
Goldman Sachs warns that severe oil supply disruptions could push the S&P 500 down to 5,400 this year. The firm maintained its year-end target of 7,600.
The Goldman Sachs Group, Inc. has warned that severe disruptions to global oil supplies resulting from the ongoing conflict in the Middle East could drag the S&P 500 index down to nearly 5,400 this year. This level would represent a decline of approximately 19% from the index's recent close of 6,632.19. The brokerage noted that while the baseline outlook for equities remains constructive, the risk of a severe oil shock remains a significant concern for investors. In a scenario where the United States experiences a moderate economic growth shock, the index is projected to fall to 6,300, marking a 5% decrease. The firm highlighted that the war in Iran adds to the downside risks posed by already elevated market valuations. Despite these potential headwinds, the firm has maintained its year-end forecast for the benchmark index at 7,600. The brokerage also addressed the role of artificial intelligence, stating that the current investment boom should help offset the drag from modestly weaker economic activity. However, uncertainty regarding the long-term impact of AI is expected to weigh on valuations. As a result, the year-end S&P 500 forward price-to-earnings (PE) ratio was lowered to 21 from 22. Under conditions of a severe oil supply shock, the PE ratio could drop as low as 16. Earlier this month, the firm flagged near-term correction risks for global stocks, citing geopolitical tensions and high valuations as primary factors.
