Goldman Sachs analysts, led by David Kostin, have cautioned that the recent S&P 500 rally could face further headwinds. In a note released on Monday, they pointed out that the index sold off by 5% over the past week, driven by both an unwind of elevated positioning and growing economic growth concerns.

Market Pullback and Key Metrics

Broad Selloff: The S&P 500’s decline reflects a significant shift in market sentiment. Goldman notes that cyclical stocks have underperformed defensive stocks by 9%, and the firm’s Momentum factor has fallen by 7%.
Sentiment Indicator: Goldman’s sentiment indicator now stands at -0.4—substantially below the highs seen in late November, yet still above levels that typically signal a tactical buying opportunity from depressed positioning.

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Cautious Outlook Amid Policy Uncertainty
Analysts emphasize that an improvement in the U.S. economic growth outlook is necessary to fully reverse the recent equity market rotations. A key test for the market will be next Friday’s jobs report. Additionally, any positive policy signals that boost growth could help lift the market, though uncertainty remains high due to:

Elevated Policy Uncertainty: Ongoing concerns around fiscal policy, trade, and broader economic conditions.
Weaker Economic Data: Recent economic indicators have prompted Goldman Sachs to adjust its forecasts.

Earnings Revisions and Sector Recommendations
As a result of weaker-than-expected economic data, Goldman Sachs has revised its 2025 EPS growth forecast from 11% to 9%, while maintaining its 2026 estimate at 7%. Despite these revisions, the firm reaffirms its year-end target of 6,500 for the S&P 500—a 9% increase from current levels. They highlight that the equity market’s pricing of the growth outlook is now roughly in line with baseline economic forecasts.
Goldman Sachs continues to recommend exposure to the health care sector, which offers a defensive tilt. Despite trading at historically low valuations, health care stocks have outperformed the broader market by 7 percentage points year-to-date.
For insights into valuation metrics, investors may consult Financial Modeling Prep’s Ratios (TTM) API, which provides key financial ratios and growth indicators.

Monitoring the Road Ahead
Goldman Sachs concludes that while the current market fundamentals remain strong, elevated policy uncertainty poses risks that could swing forecasts in either direction. As the market awaits the crucial jobs report and further policy developments, investors are advised to stay vigilant.
With the S&P 500’s near-term outlook clouded by both internal market rotation and external economic uncertainties, monitoring evolving conditions will be essential for making informed investment decisions.
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