In a Recent Report, Goldman Sachs Warned of a Bear Market, While Blackrock Downgraded US Stocks

Wall Street strategists are increasingly issuing cautious warnings about the outlook for U.S. stocks as the effects of President Donald Trump’s ongoing trade war weigh heavily on market sentiment. The mood among analysts has turned decidedly gloomy, with several major financial institutions adjusting their forecasts and outlooks as economic uncertainty intensifies.

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On Monday, BlackRock Inc. strategists Jean Boivin and Wei Li downgraded their stance on U.S. equities from "overweight" to "neutral" for the next three months. They cited the significant escalation in global trade tensions as a primary reason for expecting more downward pressure on risk assets in the near term. According to Boivin and Li, the increasingly uncertain trade landscape is making it difficult to maintain a bullish outlook on stocks, at least in the short run.

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Adding to the somber tone, Goldman Sachs Group Inc. strategists, including Peter Oppenheimer and Lilia Peytavin, warned that the recent equity market decline could evolve into a deeper and more prolonged cyclical bear market, particularly as the risk of a U.S. recession grows.

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They noted that several international stock indices have already experienced losses that qualify as bear markets — typically defined as a drop of 20% or more from recent highs. The S&P 500 Index, for instance, briefly tumbled more than 20% from its peak reached just under two months ago.

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Goldman’s team explained that cyclical bear markets, which are tied to broader economic downturns, tend to be longer-lasting than those sparked by specific events. On average, cyclical downturns last around two years and take roughly five years for the market to recover to pre-decline levels.

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By contrast, event-driven bear markets — which are triggered by sudden shocks like geopolitical events or policy shifts — typically cause similar losses of about 30% but tend to be shorter in duration and recover more quickly.

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At present, Goldman strategists are classifying the ongoing selloff as event-driven, but they acknowledge that it could transition into a more drawn-out cyclical downturn if economic fundamentals continue to deteriorate.

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To reflect these concerns, the firm’s economists recently raised their estimate of a potential U.S. recession to 45%. In line with this more cautious view, Goldman’s strategy team also cut its forecast for the S&P 500 Index, joining a number of other major Wall Street firms that have lowered their targets.

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Echoing these concerns, BlackRock CEO Larry Fink shared that many corporate leaders he speaks with believe the U.S. economy is already in a recession. Investors have responded to this dimming economic outlook by increasing their expectations that the Federal Reserve will move to lower interest rates. Many fear that the current trade policies could severely impact global economic growth, adding more urgency to the need for central bank intervention.

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In response to the rising volatility and uncertainty, BlackRock’s research team said they are increasing their allocation to short-term U.S. Treasuries — assets typically viewed as safe havens during periods of market turbulence.

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Boivin and Li highlighted that the complexity of trade negotiations, combined with varying country-specific responses, means there is little clarity on when or how the current tensions will be resolved. They warned that if the financial damage continues to mount, it could start eroding consumer sentiment and spending, further weakening the economic outlook.

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Despite the steep declines in stock values — with global markets losing close to $10 trillion in just the past three days — most analysts and investors still believe that the risks to the global financial system remain contained for now.

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However, they do note growing signs of stress in certain corners of the market. Corporate debt markets have shown signs of freezing up, and various measures of default risk have climbed, all of which suggest that the market is beginning to price in a much more challenging economic environment.

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In summary, Wall Street strategists are increasingly skeptical about the near-term prospects for equities.

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As trade tensions escalate and recession fears mount, major firms like BlackRock and Goldman Sachs are scaling back their optimism, pointing to the potential for deeper, longer-lasting market pain. Investors are bracing for continued volatility as they seek shelter in safer assets and wait to see how policy responses unfold.

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