Goldman Sachs: Correction has room to run, but bear market 'remains unlikely'

The recent market correction may have further to go, but a bear market is unlikely, Goldman Sachs strategists said in a Tuesday note.

Several related factors have triggered the current market rout. Evidence of weaker growth momentum, particularly in Europe and China, has been building. The July US employment report, showing a rise in the unemployment rate to 4.3%, heightened fears that central banks, including the Fed, have been slow to cut interest rates. This shift in sentiment has led to a sharp underperformance of cyclical versus defensive stocks.

“Furthermore, the concentration of the US equity market has only reduced slightly during the drawdown, suggesting that concentration risks remain heightened,” strategists added. “While our US economists have increased their probability of recession over the next 12 months by 10bp to 25%, it remains a risk rather than a likely outcome and yesterday’s ISM services print was strong suggesting that a broad downturn is not imminent,” they explained.

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