Goldman Warns Of A Sharp Plunge In Stocks In "Next Few Months"

Tyler Durden's picture

That Goldman's David Kostin has been warning about the possibility of a sudden, sharp drawdown in the market, is not new: we first reported on that in early May when we presented "Six Reasons Why Goldman Is Suddenly Warning About A "Large Drop" In The Market" in which we cited the head Goldman equity strategist who said that "unbalanced distribution of upside/downside risks suggests “sell in May” or buy protection." He adds that "we continue to expect S&P 500 will end 2016 at 2100, roughly 3% above the current level even as "a shift in investor perception of various risks could easily trigger a drawdown."

Specifically, he warned that "a drawdown during the next few months could find the S&P 500 index falling by 5%-10% to a level between 1850 and 1950. 16 drawdowns greater than 5% have occurred since 2009, including the 13% correction that lasted 3 months and ended in February (Exhibit 1). S&P 500 trades at 2047 and has a forward P/E of 16.7x based on bottom-up adjusted EPS of $123. A 5% pullback would lower the P/E to 15.8x, implying an index level of 1950. A 10% correction would reduce the P/E to 15.0x and the index level to 1850."

Two months, and one brief Brexit swoon later, Goldman is back with another similar warning, now expecting a 5-10% drop in the "next few month", which Goldman expects will be met with another round of BTFDing, and pushing stocks once again higher, as they close the year at 2,100. To wit:

The S&P 500 enters 2H 2016 just 3% above where it began the year. Tactically, we continue to expect the market will experience a pullback of 5%-10% during the next few months before ending the year at 2100. Strategically, we expect a continuation of the range-bound market that has challenged investors for nearly two years. Although investors appear complacent in the wake of Brexit, a maturing economic cycle with elevated valuations, decelerating buybacks, and growing political uncertainty provide the basis for potential market weakness in the second half. At the same time, above-trend US economic growth, a return to positive but slow earnings growth, a cautious Fed, and the lack of investment alternatives around the globe will support equity prices without providing a catalyst for further upside. Our 3-, 6-, and 12-month S&P 500 price targets are 1950, 2100, and 2150.



Just like in May, Kostin blames the upcoming selloff on a "drawdown" in risk, one which he expects will trough when PE multiples hit 15x.

Most recent drawdowns have troughed at a forward P/E of roughly 15x. Given consensus bottom-up next-12-month EPS of $123, this same multiple would value the S&P 500 at roughly 1850, or 13% below its recent high of 2115 reached in early June. In 16 S&P  500 pullbacks of 5% or more since 2009, the S&P 500 has declined by a median of 7%, which would bring the S&P 500 to roughly 1950.


A small problem emerges if looking at earnings on a GAAP basis, where the S&P500 is currently trading in the mid-20x PE multiple, so if indeed one tragets a 15x trough, then there is a far longer way down than what Goldman estimates.

Finally, for what Goldman thinks may be the catalyst for this upcoming slump, Goldman points out that "the fallout from Brexit is just one of several headwinds to US equity returns in the next few months. Other risks include the upcoming US presidential election, unstable growth and policy in China, and a deceleration in corporate buybacks, which represent the largest source of demand for US equities." 

Still, this being Goldman, and despite its recent call to buy gold after capitulating on its short gold reco, it has to end on a positive note which it does: "however, despite Brexit we expect decent US GDP growth of 2% in the second half of 2016. Aside from negative risk sentiment, potential UK weakness should have a minor fundamental impact on the S&P 500 because Europe in aggregate contributes less than 10% of total S&P 500 revenues."

To be sure, what Goldman did not mention is the real reason why stocks will rebound following the next drawdown: the same reason Goldman alumni run virtually every key branch of "developed" central banks around the globe: more money printing, more easing, more debt, more central planner intervention... just "more."

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1980XLS's picture

So I guess the squid looking to BTFD?

JamesBond's picture

Apparntley this con still works well enough to pull out of the bag every so often...



Manthong's picture

I think they really meant ending in the year 2100.

JRobby's picture

Goldman will be record short in the next few months (for their own account)

For the rest of their clients it will be the stock of the week. Same as it ever was.

"Laugh Track Deafening"

DownWithYogaPants's picture

Let me put on my manthong and sing "In the year 2525":

Squid Viscous's picture

in Goldman speak this means we're going straight to 2250 by Labor Day

Cognitive Dissonance's picture

"Tactically, we continue to expect
the market will experience a pullback of 5%-10% during the next few
months before ending the year at 2100."

Basically they expect another central bank intervention. And then another and another and another and.......

Troy Ounce's picture


GS is playing psychological games with the muppets.

They are in charge! Not.

dark fiber's picture

Until the whole thing becomes a worthless mess of meaningless numbers. 

jakesdad's picture

no sale - a 5-10% drop helps trump which I don't see yellen (let alone goldman, jpm, etc) voluntarily allowing to happen.  I think it's either roughly break even (ppt goes all in) or it's more than 10 (they lose control).

sounds like a squid trying to scare muppets into betting against a fed put through election... 

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) jakesdad Jul 6, 2016 7:04 AM

We can't forget that Obama had a meeting with Yellen that was specifically not recorded so we know that something was said about where markets should go.  Seeing that the FBI got the tap on the shoulder to let Hillary pass, we can only assume that Obama told Yellen to hold up markets until Hillary gets the seat

jakesdad's picture

yup - I think they know we're past the event horizon & want to make sure people don't realize it until after election...

Oldwood's picture

What remains of the Market (animal spirits) is wrapped in our politics.

As Obama gained in the polls in 07, the market worsened. Small business people I knew at the time were expressing real concern with an Obama election (prescient?) and I believe his election is what contributed greatly to economic contraction. Business was running to the hills seeing definite economic problems combined with a devout redistributionist becoming president. Of course large corporations were looking for crony opportunities of any potential "stimulus" but we knew that would likely never touch most of us small business types, and do not forget, small business IS the primary employer. Plus recognize that most corporations plan their expenditures well in advance whereas, small business is much more spontaneous and emotionally driven.

For Trump, his position is helped by economic contraction and the powers that be know this. If economic metrics show significant deterioration, they blame this on any Trump momentum (the scary Trump persona is being now constructed), and if the economy does not show negative numbers they will claim it as a win for their agenda.

The key is, as always, the media, who will be the ones who "define" the drivers for whatever metrics we see. Trump KNOWS he has this headwind regardless of which way the wind blows. It will be interesting to see how he tacks.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Jul 6, 2016 7:03 AM

And to think Morgan Stanley feared being 'The Counter-Indicating Idiot', Goldman has made a very lucrative career at being just that.

froze25's picture

Who are the primary share holders of Goldman? If a investment fund then who are the primary shareholders of that investment fund? I imagine that it's about 100 or less that own or control a good piece of them.

Whoa Dammit's picture

A stock market plunge has about the same odds as an asteroid hit these days.  BTW why do we even have bankers anymore?  Since the robot algos run everything, shouldn't bankers be going the way of Burger King workers in Japan?

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Whoa Dammit Jul 6, 2016 7:06 AM

Most of the European banks are dumping their Investment Banks and there is a constant downsizing in the US ones so it could be possible that "bankers" don't exist in a few years.

Raging Debate's picture

Well, the easy gains are now gone including the 'bribe the politician' ones. At some point, probably before 2020 the bondholders are going to get an Ike, 1956 kick in the dink. The sooner we get it over with, the better for all. 

 What happened to that Soulglow guy here with his repeated 7,500 Dow by end of April? I bet he changed his user name. And while there is much to dislike about Alan Greenspan he did say to hide in stocks. Last year he said hide in gold. He does tell you where to preserve wealth. 

 Also, make sure you have 200 pounds of beans, water back up and way to cook them. Guns are good too. The same pattern of currency wars, trade war and world war will not be avoided. I will likely survive WW3 nukes. I will make people sign over there homes, cars, jewelry for a cup of beans and be a local warlord. I do not want any of that but prudence vs. willful ignorance generally pays off.

 I am an optomist for mans future even with such an event. 

 Besides "It is better to have it and not need it then need it and not have it." - Ben Franklin

 Watch the show Naked & Afraid. Even retired special forces guys start blubbering after 20 days of hunger on that show. Now imagine two years before some towns have electricity again and three more before shops crop up again. Can you make it t years? You can if you can survive the first three months. 

ebworthen's picture

"...ending the year at 2,100." 

Uh, yeah, if the FED does QE4, the ECB bails out all Italian banks, and China devalues 10%.

Cognitive Dissonance's picture

You misunderstand. If all that occurs, the market ends the year at 3100. /sarc

RawPawg's picture

um,i'm thinking days,hours

but what do i know? i'm just a simple Silver stacker

Wahooo's picture

Another dip to buy.

Panic Mode's picture

Only 5-10%!!?? That's very optimistic.

tovar2's picture

Nail gun alert!   Write this name down...Ahmet Arinc  He is about to get Tesla'd or fall out a window. 


Deutsche Bank AG's global currencies-trading chief, Ahmet Arinc, is leaving the bank, according to an internal memo sent to employees Wednesday.

Mr. Arinc, who joined Deutsche Bank in 1998 and has been on leave for several months, won't be returning. The memo was confirmed by a Deutsche Bank spokesman, who declined to comment further.

Mr. Arinc declined to comment when reached by telephone Wednesday.

In addition to currencies trading, he also oversaw emerging-markets debt trading.



Can we take policies out on guys like this?  Just saying..

JailBanksters's picture

So they're going fraudulently push the stock prices up in a couple of months then after

the public has sold it off.


Bill of Rights's picture

Of course right as cunt leaves a new Cunt arrives and we start over

FreeShitter's picture

Shot through the heart and you're to blame, darling you give cunts a bad a name......

adanata's picture

Digital 'dollar' printing and narrative=smoke and mirrors...while in the real world they are taking down Deutsche and closing the bank accounts of the largest retail gold and silver dealer in Sweden. i believe the window is closing...

gregga777's picture

Self-serving sell-side propaganda by the premier banking gangster—Goldman Sachs—designed to impoverish their muppet clients. Banking gangsters forecasts are always self-serving and are never within a lightyear of reality, never predict market crashes and are only used to fleece their muppet clients. Goldman Sachs knows for a fact that the end of QE3 was the Feral Reserve System's intentional trigger for the third market collapse this century and they acted on that warning and warned their fellow Oligarch criminal cronies of that fact.

lakecity55's picture

Premier Gangster is right on. After Comey pissed on everyone yesterday we now know Goldman Rules the World for the Red Shield!!

buzzsaw99's picture

i ain't selling shit. EVER.

Nid's picture

Yes of course, "drawdown"...because everyone knows that the amount of sellers' proceeds equartes exaclty to the loss in equity value during a selloff...."drawdown". 


silverer's picture

Sharp plunge in the next few months, eh? Optimism on display.

finametrics's picture

realize what's happening here. plebs are being trained to buy the dip... right over the cliff.

Iconoclast421's picture

"based on bottom-up adjusted EPS of $123" Based on smoke what? WTF is that number?

Quinvarius's picture

Rally incoming.  Got it.

south40_dreams's picture

Is it October already?

CrabbyR's picture

headwind this and headwind that...when certain talking heads open their mouths you get headwind

Skiprrrdog's picture

Just another word for a blow job...

CHoward's picture

Hey Goldman - 5-10% - that's it??  I think you're a tad light on your feet.


Lighten up a bit on the crack and booze and let reality in bud.

katchum's picture

That's a funny chart Goldman Sachs created. Year end rally!

lakecity55's picture

If that's the case, I should sell off my trannie, put the cash in a note, then BTFD when it bottoms out! No way am I touching my miners right now.....

Skiprrrdog's picture

Why would *anyone* listen to anything the jew cunts at Golem Sux have to say?

moneybots's picture

Goldman Warns Of A Sharp Plunge In Stocks In "Next Few Months"


Is this statement supposed to be for the benefit of the Muppets?

spqrusa's picture

Just look at Japan over the last two decades to understand where the market it going.

QE-infinity == wealth for the 1% and their 10% enablers while the 90% gets the shit-kicked-out-of-them.

OutaTime43's picture

How much to these tea leaf readers make? I'd love to be able to draw my guess on the trading range for the next 6 months and get paid a solid 6 figure salary.  And if the coin toss goes against me and I'm wrong?  Doesn't matter because there's no accountability . Great "job".