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April 11, 2020, 10:27 a.m. EDT

Goldman analyst who predicted the coronavirus would kill the bull market says ‘risk to the downside is greater’ despite Dow’s recent rally

‘There’s a little bit of asymmetry in terms of the downside risk towards a level in the S&P 500 of around 2,000,’ says Goldman’s David Kostin

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By Mark DeCambre, MarketWatch


Bloomberg
David Kostin is chief U.S. equity strategist at Goldman.

‘Risk to the downside is greater than the opportunity to the upside from this point where we stand today.’

That’s Goldman Sachs’s chief equity strategist, David Kostin, explaining during a CNBC phone interview on Tuesday that recent enthusiasm for stocks don’t necessarily constitute an all-clear signal for bullish investors seeking a path higher for the pandemic-stricken markets.

“There’s a little bit of asymmetry in terms of the downside risk toward a level in the S&P 500 of around 2,000, which is down almost 25%, and upside of around 10% to a target at the end of the year of 3,000,” he explained on Tuesday’s edition of the channel’s “Squawk on the Street” program.

That’s quite a range of outcomes from Goldman but speaks to the uncertainty surrounding the economy and the markets once they reach the aftermath of the COVID-19, which is still wreaking havoc on domestic and global economies due to forced shutdowns of business and personal activity intended to mitigate the spread of the deadly coronavirus pathogen.

The disease, which was first identified in China in December, has infected nearly 1.4 million people and killed nearly 80,000 world-wide, according to data aggregated by Johns Hopkins University , has resulted in some 10 million jobs lost over the past two weeks and has likely pushed the unemployment rate in the U.S., which stood near a 50-year low at 3.5% back in February, north of 10%.

However, glimmers of hope that the spread of the infection may be leveling off has buoyed stocks over the past two sessions—until stocks staged a dramatic U-turn late—and raised the question of whether the market is underestimating the near-term and lasting impacts of the pandemic.

See: Wall Street star money manager says S&P 500 could plunge to 1,500 in worst case, with coronavirus fallout lingering for years

For Kostin’s part, it is important, he said, that investors not get overzealous, citing market moves during the 2008 financial crisis. The analyst recalled that the market 12 years ago took several months of violent moves up and down before ultimately putting in a lasting bottoming on March 9, 2009.

“I would just remind you that in 2008 in the fourth quarter there were many different rallies…but the market did not bottom until March of 2009,” Kostin told CNBC.

The Dow, S&P 500 and Nasdaq’s most recent bottom was put in on March 23, but the velocity at which the equity indexes crashed last month from all-time highs has been perhaps the hardest thing for strategist and investors to wrap their minds around. The Nasdaq and S&P, which stood at all-time highs on Feb. 19, remain 21.5% and 19.7% beneath those levels, respectively, while the Dow is down 23.3% from its Feb. 12 all-time closing high.

Check out: Is the Dow staging a genuine coronavirus rebound? Here’s what experts think as the stock market attempts to shake the bearish grip of the pandemic

Back in early March, Kostin and his team accurately predicted that the longest bull market in U.S. history would run out of road as the global COVID-19 outbreak crushed corporate earnings and the overall economy.

Read: Investors should prepare for a coronavirus-induced ‘vicious spiral’ more than twice as bad as the financial crisis, says J.P. Morgan

In a note on Tuesday, Kostin said that stock-buyback activity among S&P 500 companies would decline by 50% to about $371 billion in 2020.

U.S. stocks finished the holiday-shortened week sharply higher Thursday, with the main indexes recovering about half of their losses that were racked up in late March during the height of fears about the impact of COVID-19.

The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +2.17%  gained 285.80 points, or 1.2%, to close at 23,719.37, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.23%  jumped 39.84 points or 1.5% to end at 2,789.82. The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.17%  advanced 62.67 points to trade near 8,153.58, a 0.8% gain.

For the week, the Dow rose 12.67%, the S&P 500 notched a 12.1% gain for the abbreviated week, marking its best weekly gain since 1974, and the Nasdaq rose 10.59%, according to Dow Jones Market Data.

From its recent March 23 low, the Dow is up 25.01%, the S&P 500 is up 22.27% from that point and the Nasdaq is up 18.20%, according to FactSet data.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
24,995.11
+529.95 +2.17%
Volume: 426.29M
May 26, 2020 5:20p
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/zigman2/quotes/210599714/realtime
US : S&P US
2,991.77
+36.32 +1.23%
Volume: 3.36B
May 26, 2020 5:20p
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/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
9,340.22
+15.63 +0.17%
Volume: 4.13M
May 26, 2020 5:16p
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Mark DeCambre is MarketWatch's markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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