Goldman says market is unlikely to make new lows because government is doing 'whatever it takes'

Published Mon, Apr 13 20208:45 AM EDT

(This story is for CNBC Pro subscribers only.) Goldman Sachs acknowledged that its call for a deeper sell-off is "no longer likely" as it underestimated the unprecedented policy actions to offset the coronavirus impact. The bank said the stock market has likely bottomed and it's pricing in a "sharp" economic recovery. It previously predicted the S & P 500 would trough at 2,000 mid-year . "If the US does not experience a second surge in infections after the economy reopens, the 'do whatever it takes' stance of policymakers means the equity market is unlikely to make new lows," David Kostin, Goldman's chief U.S. equity strategist, said in a note on Monday. Last week, the S & P 500 had its biggest one-week gain since 1974, jumping 12.1% to 2,789.82 , after an apparent improvement in the U.S. coronavirus outlook along with a vow of unlimited stimulus from the Federal Reserve. "The combination of unprecedented policy support and a flattening viral curve have dramatically reduced downside risk for the US economy and financial markets and lifted the S & P 500 out of bear market territory," Kostin said. Goldman kept its year-end target on the S & P 500 unchanged at 3,000, representing a 7.5% gain from Friday's close. The target came in slightly higher than the consensus forecast on Wall Street of 2,896, according to the CNBC Market Strategist Survey that rounds up 16 top strategists' forecasts. Bottom checklist Goldman created a three-part checklist to call the the stock market: (1)Slowing viral spread; (2) Evidence that fiscal and monetary policy stimulus is working; (3) A bottoming in investor positioning and flows. The bank said the first two items have shown "real improvement," suggesting the market is likely to reach its year-end target. As for investor positioning, Goldman said institutional and retail flows have never declined to lows reached in other corrections during the coronavirus sell-off. "Investor positions have been remarkably resilient during this drawdown, mirroring the lower-than-expected level of equity risk premium implied by current prices," Kostin said. Signs are emerging that outflows might have peaked. Goldman noted U.S. equity mutual funds and exchange-traded funds have seen $19 billion of inflows over the past two weeks after experiencing $45 billion outflows from market peak to trough. Kostin added the rebound in stocks will trigger more buying from trend-following quants and systematic investors going forward.

(This story is for CNBC Pro subscribers only.)

Goldman Sachs acknowledged that its call for a deeper sell-off is "no longer likely" as it underestimated the unprecedented policy actions to offset the coronavirus impact.

The bank said the stock market has likely bottomed and it's pricing in a "sharp" economic recovery. It previously predicted the S&P 500 would trough at 2,000 mid-year.