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Coronavirus will wipe out corporate profit growth in 2020 and may trigger recession: Goldman Sachs

Brian Sozzi
Editor-at-Large

Strategists at Goldman Sachs just reminded investors why they are dumping stocks hand over fist right now.

The coronavirus may wipe out corporate growth in 2020, perhaps completely.

Goldman Sachs said Thursday in a note U.S. companies will generate no earnings growth in 2020. Underlying the call is Goldman’s view that the coronavirus is expected to spread around the globe and severely harm economic activity. For 2020, Goldman slashed its S&P 500 earnings estimate by $9 and expects no earnings growth. Looking out into 2021, Goldman now sees $8 less in S&P 500 earnings and a modest 6% growth rate.

“Our reduced profit forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for US exporters, disruption to the supply chain for many US firms, a slowdown in US economic activity, and elevated business uncertainty,” wrote Goldman strategist David Kostin.

People wear protective masks in Kuwait City on February 27, 2020 amidst a world epidemic of cononavirus COVID-19. (Photo by YASSER AL-ZAYYAT / AFP) (Photo by YASSER AL-ZAYYAT/AFP via Getty Images)

Kostin doesn’t stop there in sounding the alarm bell on coronavirus, however.

“A more severe pandemic could lead to a more prolonged disruption and a US recession,” Kostin said. Under a recessionary scenario, Kostin sees S&P 500 earnings dropping 13% this year. They would potentially rebound to 10% growth in 2021.

Goldman recommends shifting one’s portfolio to more defensive equities. The investment bank raised its outlook on real estate to overweight from Neutral and utilities to Neutral from Underweight. Industrial equities are now rated Neutral, down from Overweight, while financials are at Underweight versus Neutral previously.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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