The recent rally in U.S. stocks may be fragile as Goldman Sachs warned in a note Tuesday that the S&P 500 remains vulnerable to renewed tariff tensions and signs of weakening economic data.
Goldman Sachs said President Trump’s “Liberation Day” announcement raised fears of a U.S. and global recession by shifting focus away from U.S. tech stocks and toward trade risks.
While the subsequent 90-day tariff reprieve on April 9 triggered a powerful rebound—“one of the best days ever” for the Nasdaq and S&P 500—the firm questioned the sustainability of that rally.
“This raises a key question facing investors: Is this rally sustainable or not?” Goldman wrote. “If the tariff announcements are reversed quickly with little lasting economic damage, this does suggest that the downside risks are limited. Nonetheless, at current valuations, we also think the upside is limited.”
Goldman warned that “sharp rallies within bear markets are the norm, not the exception,” and that equities remain exposed to further drawdowns if hard data begins to deteriorate.
Even in a mild recession, the bank said S&P 500 earnings could fall by around 10%, and if “valuation multiples also fell to 18x P/E, that would imply a fall of roughly 20% from current levels.”
The firm also sees longer-term structural risks, including concentrated U.S. equity leadership, an overvalued U.S. dollar, and weakening relative returns in the tech sector.
“In a less globalised world with a structurally higher cost of capital,” Goldman noted, U.S. companies may no longer hold the advantage they once did.
Goldman reiterated its call for broad portfolio diversification across regions, sectors, and factors, arguing that “the case for diversification remains very strong.”
