Goldman Sachs: The probability of a bear market in US stocks is very low! The Federal Reserve is more likely to cut interest rates by 25 basis points in September

The uncertainty in macroeconomics and policies has sent further warning signals to the stock market in recent weeks, but Goldman Sachs analysts say that the U.S. stock market falling into a bear market territory, meaning a larger risk of a pullback, seems very small.

According to the bank, in a situation where valuations are high, macroeconomic prospects are mixed, and policy uncertainty is high, there is a high risk of investors withdrawing capital.

Although these factors may cause volatility and erode returns in the coming months, Goldman Sachs points out that there is not much reason to believe that U.S. stocks will drop 20% from recent highs.

"We believe that by the end of the year, the risk-adjusted return on stocks may be lower. However, we believe that the risk of a bear market is still low, and the risk of an economic recession is relatively low, thanks to a healthy private sector and the loose policy of the Federal Reserve," analysts wrote in a report on Tuesday.

They noted that the risk of a pullback has risen to about 20%, which is still relatively low. Analysts stated that historically, a risk exceeding 30% would be a "clear warning signal."

"We have a slight risk preference for the next 12 months," analysts said.

They also pointed out that since the 1990s, bear markets characterized by pullbacks of more than 20% from recent highs have become increasingly rare, as economic cycles have lengthened, macro volatility has decreased, and the Federal Reserve's policy "buffer" has become stronger.

The company's outlook comes amid significant volatility in U.S. stocks in recent months, triggered by weaker-than-expected macro data. Following the release of the July non-farm payroll report, there was a significant sell-off in early August, and last week, the S&P 500 index recorded its worst week in over a year as the August jobs report slightly missed expectations, sparking new growth concerns.

Regarding the extent of the Fed's rate cut, Goldman Sachs chief economist Hazous said on Monday, "I would not rule out the possibility of a 50 basis point rate cut, but a 25 basis point cut is more likely." Hazous added, "I think the Fed has ample reason to cut rates by 50 basis points because the current federal funds rate is too high. It is the highest policy rate in the G10. Although in fact, the U.S. has made greater progress in inflation than most G10 economies."

However, Hazous and his colleagues believe that using such a "big gun" could damage market sentiment.

Bank of America U.S. economist Aditya Bhave said in a client report, "We believe that based on the data we have, such an aggressive rate cut is not necessary. Moreover, if the Fed starts with a 50 basis point rate cut, whether through Fed officials' speeches or dot plots, the less dovish forward guidance could lose credibility."

Investors generally expect the Fed to start cutting rates at next week's policy meeting. According to the Chicago Mercantile Exchange's "FedWatch" tool, most people expect the Fed to cut rates by 25 basis points, with the market expecting a total cut of 100 basis points by the end of the year