Stocks may be poised for a decline following a recent relief rally that pushed the market to unprecedented highs, according to analysts at Goldman Sachs. Investor sentiment shifted positively after a temporary ceasefire agreement between the U.S. and Iran was announced on April 8, which sparked a rally that erased previous losses attributed to geopolitical tensions and propelled the S&P 500 and Nasdaq to record levels.
Following this initial announcement, President Trump extended the ceasefire just before its expiration, pending a proposal from Iranian leadership. While this extension provided a boost to U.S. stock markets, Goldman Sachs issued a cautionary note, suggesting that equities might face a downturn before experiencing further advances. The firm has advised clients to avoid adding more risk to their portfolios, highlighting that the likelihood of another dip in stock prices outweighs the potential for additional gains.
The analysts referenced their equity asymmetry framework, which indicates that the risk of an equity drawdown remains significant while the prospects for strong rallies appear limited. They emphasized that this warning is primarily about managing risk rather than altering their long-term optimistic outlook for equities.
Goldman Sachs continues to project a bullish long-term trajectory for stocks, maintaining its 2026 year-end target for the S&P 500 at 7,600, which has remained unchanged since the beginning of the ongoing conflict in Iran. However, short-term concerns have surged, particularly due to the ongoing energy shock related to the war, which has negatively impacted the business cycle outlook.
As such, the analysts conveyed that the chances of a stock market pullback are more likely than a rally, particularly in light of improving valuations. They noted that while an end to hostilities in Iran could provide substantial support for risk assets, the current market landscape remains fragile amid the geopolitical backdrop.
