Goldman Sachs expects severe oil supply disruptions to cause the index to fall to 5,400 points

Goldman Sachs states that if the Middle East war continues to severely disrupt oil supplies, the S&P 500 index could test near 5,400 points this year, down about 19% from last Friday’s close of 6,632 points.

Goldman Sachs predicts that, under a scenario where U.S. economic growth faces moderate shocks, the S&P index could fall to 6,300 points; however, the AI investment boom should offset the drag from a slight slowdown in economic activity.

Goldman Sachs notes that, besides the Middle East war, uncertainties surrounding the impact of artificial intelligence are also expected to weigh on the index valuation. In light of this, the firm has lowered its forecast for the S&P 500’s forward P/E ratio at year-end from 22 to 21.

Goldman Sachs adds that, in scenarios of moderate economic growth and severe oil supply shocks, the P/E ratio could drop to 19 and 16, respectively.

Goldman Sachs maintains its forecast of the S&P 500 ending the year at 7,600 points, stating, “The fundamentals of the U.S. stock market remain positive, but the escalation of the Iran war increases downside risks from overvaluation.”

Earlier this month, Goldman Sachs indicated that due to geopolitical concerns, disruptive impacts from AI, and high valuations, there is a “correction risk” in global equities in the short term.