Investment bank Goldman Sachs (GS) estimates that there is a nearly 30% chance of a big drop in U.S. stocks due to rising economic policy uncertainty. While this risk is lower than previous peaks, it is notably higher than levels seen in September. The figure comes from a new framework designed to track drawdown risks, which shows that extreme market declines—such as a 10% drop within three months or a 20% drawdown over 12 months—occur about 55% of the time when drawdown risk exceeds 35%.
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When the probability is between 25% and 35%, the risk of a major decline drops to 40%, compared to the average unconditional probability of just 16%. The increase in drawdown risk since September has mainly been driven by U.S. economic factors like growth, inflation, and policy shifts, alongside rising equity valuations. Market variables, including higher commodity prices and inflation expectations, have further contributed to this trend, according to Goldman analyst Andrea Ferrario.
Policy uncertainty, particularly around U.S. tariffs and fiscal regulations, is amplifying market risks. President-elect Donald Trump’s plans for new tariffs on Chinese goods and others are adding to the concerns. Ferrario also noted that European policy uncertainty has already weighed on stock valuations. Although predicting market impacts from geopolitical risks remains difficult, he warned of potential setbacks that could be tough to anticipate.
Is GS a Good Stock to Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on GS stock based on 11 Buys, five Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. After a 56% rally in its share price over the past year, the average GS price target of $636.13 per share implies 9.67% upside potential.
