Goldman strategists see slim chances of a post-election bear market

The US stock market is unlikely to head into a bear market in the next 12 months, with a resilient economy continuing to support equities, according to Goldman Sachs Group Inc. strategists.

A team led by Andrea Ferrario see just an 18% chance of a decline of more than 20% for stocks — which would constitute a bear market — even when taking into account the risks posed by Tuesday’s presidential election.  

The S&P 500 has gained about 20% this year after surging nearly 25% in 2023, led by soaring megacap technology stocks. Evidence of a resilient US economy has kept the rally afloat, though bond yields have pushed higher this month amid doubts about the depth and extent of the Federal Reserve’s easing cycle as well as election uncertainty.

“Equities should be able to digest higher bond yields as long as they are driven by better growth,” the Goldman strategists wrote in a note, though they warned there is a possibility of a burst of volatility in the aftermath of the US vote. 

The economic environment remains friendly despite recent signs of weakness, the strategists said. Job growth slowed to the weakest pace since 2020 in October, a month distorted by severe hurricanes and a major strike, and the path to cooler inflation continues to prove bumpy, recent data show.

Still, the economy expanded at a robust pace in the third quarter, continuing several quarters of solid growth, and the unemployment rate has remained low.