The U.S. stock market is likely headed for a correction, according to prominent Wall Street investment bank Goldman Sachs (GS).
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Goldman Sachs analyst Scott Rubner made the call on U.S. equities during a day when the blue-chip Dow Jones Industrial (DJIA) average is down 800 points and the technology-laden Nasdaq Composite index has fallen more than 2%. Rubner said that volatility in the options market is likely to cause a correction in the U.S. market. A correction is defined as a decline of 10% or more from recent highs.
Rubner said in a note to clients that some $2.7 trillion of U.S. stock market derivatives are set to expire on Feb. 21, and, if not exercised, will put pressure on stocks and cause extreme volatility. Both the benchmark S&P 500 (SPX) and European stock markets hit record highs in recent days but have since fallen sharply.
Tariff Threats
Rubner and others on Wall Street say the U.S. market is gyrating as it looks for direction amid U.S. President Donald Trump’s ongoing threats to impose import tariffs on goods entering America. Trump most recently threatened to impose tariffs on pharmaceuticals, semiconductor chips, and wood, which has exacerbated fears of a global trade war.
At the same time, recent data points to two worrisome trends for the U.S. economy, rising inflation and weak consumer spending. January’s inflation rate came in hotter than expected and consumers appear to be rolling over. The University of Michigan’s consumer sentiment index fell 10% in January as shoppers raised concerns about higher-than-expected inflation and potential impacts from tariffs.
While a correction is not as bad as a full-blown bear market that is characterized as a decline of 20% or more from recent highs, Goldman Sachs says it doesn’t bode well for the U.S. market moving forward.
Is GS Stock a Buy?
The stock of Goldman Sachs has a consensus Strong Buy rating among 16 Wall Street analysts. That rating is based on 12 Buy and four Hold recommendations assigned in the last three months. The average GS price target of $677.53 implies 7.80% upside from current levels.
