"Market leader" Goldman Sachs issues rare warning: Minor pullback in US stocks could trigger a major decline

Zhitong App learned that Goldman Sachs, a Wall Street giant known for advocating long positions in US stocks, has recently taken a rare cautious stance on the US stock market. Scott Rubner, a US stock strategist at Goldman Sachs, recently stated that if the US stock market experiences even a slight downward correction from its current historical highs, the subsequent overall decline "could be very significant." Rubner warned in a report to clients on Thursday: "The threshold for painful trading is now lower, not higher. A small decline could trigger a larger drop."

On the day before Rubner issued the above report, during the trading session on Wednesday, the benchmark US stock index, Pro UltrPro Shrt S&Pro 500, experienced its largest decline in months. The main reason behind this was concerns about the performance prospects of large technology companies and the monetization of AI, as well as Federal Reserve Chairman Jerome Powell's suppression of market expectations for aggressive interest rate cuts, implying that the Fed needs to see more economic data before the next rate cut and indicating that a rate cut next month is unlikely. Earlier this week, the market's enthusiasm for large technology companies pushed the US stock market to new historical highs. On Thursday, the benchmark index, Pro UltrPro Shrt S&Pro 500, recovered some of the previous day's losses.

Rubner wrote in the report: "The US stock market is facing selling pressure after reaching new highs, and it will be very difficult to continue to rise in February." He particularly pointed out that market leverage levels are rising, stock index futures positions are unusually tense, and market liquidity is declining.

Rubner's forecast on Thursday followed his forecast from last week, when he hinted that the market could shift to a tactical bearish stance. His analysis report also showed the seasonal trend of the US stock market - the second half of February is usually the worst two weeks of the year for the US stock market.

In early November, Rubner correctly predicted a strong rebound in the US stock market at the end of the year and stated that the possibility of painful trading was increasing. However, Goldman Sachs holds an optimistic view on the year-end level of Pro UltrPro Shrt S&Pro 500, with a bullish target of 5,100 points.

Pro UltrPro Shrt S&Pro 500 rose sharply by about 14% in the last two months of 2023 and has risen by about 2% since 2024, reaching a new historical high. But can it continue to rise after reaching new highs? Some investment institutions take a very cautious stance on this. Legendary investor and president of A. Gary Shilling & Co, Gary Shilling, who accurately predicted the 2008 financial crisis, recently warned that US stock market investors may face a long period of disappointment, as an economic recession could hit this year and continue until 2025. In recent months, Shilling has repeatedly warned that the Pro UltrPro Shrt S&Pro 500 could plummet by 30% or even more, and that an economic recession is imminent.

Shilling pointed out that the ratio of put options to call options is continuously decreasing, analysts have overly optimistic expectations for corporate performance, and investors have concentrated a large portion of their positions in the "Big Seven Tech Giants." These are all evidence of excessive optimism and potential trouble in the future.

JPMorgan quant strategist warned that the dominance of the top ten stocks in the US stock market is becoming increasingly similar to the dot-com bubble era, which increases the risk of a market sell-off. JPMorgan stated, "While the similarities between the current environment and the speculative frenzy around internet stocks in the early 21st century are often overlooked, analysis shows that the situation is much more similar than people imagine." "Given the recent record highs and the extreme positioning in the US stock market, we do expect a decline, likely driven by weakness in the top ten constituents."

Tom Lee, the head of strategy research at Fundstrat, stated that the "parabolic market trend" in the US stock market since October 2023 is likely to temporarily end with a "significant pullback." "I do believe that the US stock market will continue to remain strong in the future, but after a period of upward movement, there tends to be a significant gap," added Tom Lee. However, Tom Lee remains very optimistic about the year-end target for the Pro UltrPro Shrt S&Pro 500, expecting it to close at 5200 points by the end of 2024, ranking highest among the expectations of Wall Street investment institutions.