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Goldman Sachs cuts S&P 500 year-end target to 3,600

Yahoo Finance Live anchors discuss Goldman Sachs cutting its S&P year-end-target to 3600 from 4300.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: But let's take a look at what's going on with the futures. A rough end to the week is what it is looking like this morning. We are seeing Dow futures point to a lower open here, down by 400 points right now. S&P futures up 1.4%, NASDAQ futures down by 1.3%.

If we look at the five-day chart, Brad, we have seen that this week obviously has been rough. Post Fed, pre Fed, but really post Fed the losses accelerating.

BRAD SMITH: Yeah, if we can pop back over to the S&P 500 actually. I know we were taking a look at the futures there, but maybe we can even just take a look more broadly at the S&P 500. Yesterday we had actually taken out some of the July lows that we had even seen.

And so now getting even back into that territory, looking at this broader kind of year-to-date view, that's exactly what we're going to be keeping close tabs on from this point. You're seeing that July low that we had ultimately retested yesterday and we'll see exactly where things net out at the end of today's trading session.

But again we've seen more of that slippage. The dippity dip is my key technical term that we've continued to see resurface over the past couple of sessions here. But all of that triggered, not just on, of course, last week where we were seeing some of the economic data that was moving into the Fed's decision, but that Fed decision, of course, that you were mentioning this week. And ultimately the pathway forward from here that they've set forth, as evidence through dot plot data as well.

JULIE HYMAN: Yeah, And let's take a look at bond just to put a fine point on that with the 10-year T note, 3.75%. So here's the year today chart and the last time we've been there. I don't know how far we have to go back. So it's not the five-year chart. Maybe it's on the 10-year chart, not on the 10-year chart.

Maybe it's on the 20-year chart. Yeah, there we go it's on the 20-year chart. So this is the lowest that we have seen-- or the highest that we've seen that 10-year yield going back, what, just eyeballing this, looks like financial crisis times.

BRAD SMITH: Yeah, 2008, 2009, right in that ballpark there. So continue to keep a close eye on that. Here are three things that you need to know right now as we begin today's show. We've got quite a few notes, including one from Goldman Sachs cutting its S&P 500 year-end target to 3,600. This is down from its previous forecast of 4,300.

As part of its reasoning, Goldman Sachs says that the interest rate path is now higher than it had originally forecasted there. And this is extremely noteworthy especially as we think through where banks have continued to monitor, not just what their forecasts were prior to and coming into some of the most recent waves of Fed decisions.

But what could also be some of the catalysts as well, especially as we've already seen some of the global picture and that global slowdown really impact companies, and there's this larger question of with the targets that the banks are setting forth now and especially from Goldman Sachs here on the day.

If the companies that have even provided enough of that kind of forward guidance that actually reflects the real state of how their end consumers are feeling. How their business is going to have to navigate this near term period where we are continuing to see some of that margin compression.

That is going to be exactly what gets priced into even more of the year-end targets. And the question is, what type of equity market activity do we see to that point, once we get to the end of the year? And the slippage that we've seen even now, because right now we're sitting at this point in time for the S&P 500 still off of some of those targets sitting at about 3,700, just above that right now.

And so to get to 3,600, that would still be even more of that downturn that Goldman Sachs foresees. And we'll see what other banks as well start to reiterate or reposition some of their own end targets.

JULIE HYMAN: Yeah, we've had a little bit of that repositioning already. For example, Julian Emanuel of Evercore ISI cut his target earlier in the week as well. So we're starting to see this. I mean, we don't have that much more of the year to go, right? Until we get to these targets. But nonetheless, it just reflects this rapidly changing environment.

And in the note, I mean, basically David Kostin, the team over there at Goldman, saying the expected path of interest rates is higher than we previously assumed. Yes, indeed, that seemed to be what is happening for everyone. They also said the outlook is unusually murky and that seems to be affecting, not just strategists and big banks, but companies, [INAUDIBLE] and everyone else.

And then the other note that was getting our attention this morning is Bank of America coming out and talking about the enormous amount that people are holding in cash right now, because of the extreme levels of pessimism. The strategists over there say, investor sentiment is unquestionably the worst it's been since the financial crisis.

BRAD SMITH: Right. And they were--

JULIE HYMAN: Pretty dramatic to say that.

BRAD SMITH: Exactly. And they were tracking some of the outflows and the inflows, cash inflows particularly, is what they were seeing there, $30 billion worth of cash inflows. However, equity funds, global equity funds seeing outflows of $7.8 billion. Now that's the week through September 21 and they were citing some EPFR Global data.

But you think about all of what would have to take place and whether we're kind of set up for what we had seen as well in 2018, where even in a rising interest rate environment back then, there was a lot of question marks around some of the sectors that could be set forth the biggest declines.

And for the tech sector, and we're going to talk about semiconductors a little bit later on, there could be even more of that almost similar or analogous movement to the downside in tech that we had seen towards the tail end of 2018. And what would be the backstop? What would be the catalyst for some of the companies or for some of the investors out there to start to nibble at some of those opportunities in tech? It doesn't seem to be a clear catalyst on the table right now.