Is the "pain" coming to the US stock market? Goldman Sachs predicts: To go up, it must first go down!

Caixin March 3 News (Editor Huang Junzhi) Goldman Sachs Group Inc.'s trading division warns that the U.S. stock market may need further correction before a sustained rally, citing fragile market sentiment and poor capital flow, which have left the S&P 500 vulnerable after failing to break the 7,000-point mark recently.

The Goldman Sachs trading team, led by Gail Hafif and Brian Garrett, wrote in a client report: “From now on, the U.S. stock market will only decline, with no possibility of an upward move.”

They added that, despite the overall favorable macroeconomic environment, the stock market still struggles to digest geopolitical tensions and sharp fluctuations in commodity prices, leading their traders to believe that the U.S. stock market will face a “painful” short-term trend.

On Monday, the S&P 500 closed roughly flat, rebounding from a sharp decline in early trading. Traders are discussing the potential impact of escalating Middle East conflicts: with the nearly paralysis of traffic through the Strait of Hormuz and the shutdown of a major Saudi refinery, oil prices surged, impacting the energy market. Brent crude futures rose about 6.7% on Monday, approaching $78 per barrel, the largest single-day gain since June last year.

Despite oil prices soaring and unsettling investors, historical data shows that stock market losses may be limited. Goldman Sachs traders pointed out that since 2000, in 22 instances where West Texas Intermediate crude oil rose 10% or more in a single day, the S&P 500’s returns after short-term sell-offs were generally positive.

Goldman Sachs data shows that the index averaged a 0.24% decline the next day, but the average return after one month was 1.23%, with a median of 3.57%. The surge in Brent crude prices also followed a similar pattern.

Meanwhile, Goldman Sachs analyst Dom Wilson believes that the short-term rise in oil prices will put pressure on stocks and credit markets, but only severe and sustained supply disruptions will cause substantial damage to global economic growth.

March “Headwinds”

Additionally, Goldman Sachs traders noted that seasonal factors in March should also be considered.

Historically, March is the fourth-worst month for the S&P 500 since records began in 1928, with high volatility in the first half of the month. From March 1 to 14, the average gain has been only 30 basis points, but performance tends to improve afterward, with the two weeks after March 15 averaging an 80 basis point gain.

The Goldman Sachs trading report also highlighted several other points:

Retail investors have been buying U.S. stocks on dips, but their enthusiasm this year has been less than in 2025 due to continued market volatility in the first two months of 2026.

Share buybacks may have provided some support to the U.S. stock market. Last week’s buyback volume was about 1.7 times the average level since early 2025, and about 1.5 times the level in the same period of 2024. However, this support is expected to fade. The next “buyback blackout period” is projected to start around March 16 and last until the end of April.

So far this year, companies have announced $317 billion in share repurchase plans, making it the second most active start on record, after 2023. But Goldman Sachs warns that relying solely on buybacks is unlikely to trigger a rebound, and suspending buybacks could worsen the weakness.

One positive factor is that tax refunds may boost spring consumer spending and market sentiment. About a quarter of refunds are issued in March, with roughly three-quarters distributed by the end of April.

The firm’s models indicate that systemic funds have largely exited the U.S. stock market, while commodity trading advisors are gradually turning to buy. However, this dynamic could change dramatically as market trends evolve.