Wall Street warns that the market will experience a "painful path"! Under the geopolitical storm, the US stock market may first experience a pullback before rallying to new highs.

A trading team from the Wall Street financial giant Goldman Sachs has warned that the US stock market may need further correction before embarking on a new sustainable uptrend. In their latest research report, the Goldman Sachs trading team mentioned that the core logic behind the significant correction in US stocks before the next rebound lies in the fragile market sentiment and the fluctuation of global fund flows. After the S&P 500 index failed to breakthrough the historic 7,000-point mark, the benchmark index became vulnerable. The broad support of the US macroeconomic background, which was key to the bull market logic, has not effectively absorbed the ongoing tensions in the Middle East geopolitics and the significant fluctuations in commodity prices. Gail Hafif and Brian Garrett, the leaders of the Goldman Sachs trading team, wrote in a research report sent to clients: "From here, the only way up is to adjust downwards first, then gather momentum to move higher." Although the macroeconomic background provides some level of support, it does little to help the stock market digest the recent geopolitical tensions and sharp commodity price fluctuations, leading to what the team refers to as a "painful path" of correction in the short term. On Monday, the S&P 500 index closed nearly flat, significantly rebounding from earlier sharp declines during the trading day. Traders are still weighing the impact of escalated Middle East geopolitical conflicts on the financial markets, as the conflict has triggered a rapid surge in international oil prices. With oil and LNG shipping nearly stagnant in the Strait of Hormuz and a major Saudi Arabian refinery facing production interruptions, the energy market experienced a severe disruption in supply, causing oil prices to rise. Brent crude futures rose by about 6.7%, reaching nearly $78 per barrel, marking the largest single-day gain since June last year. As US President Trump announced significant military action against Iran with the statement "no stopping until the objective is reached," and the possibility of it lasting four weeks, along with escalating conflicts spreading beyond Iran and Israel to Middle Eastern economies such as Iran's drone and missile attacks on critical US infrastructure in Dubai, Abu Dhabi, Bahrain, and Kuwait, Lebanon launching a new round of rocket attacks on Israeli territory, and the continuing unpredictability of geopolitical turmoil in the Middle East and the potential ripple effects of rising oil prices, fund managers have new reasons to sell off stocks and other risky assets on a large scale, and instead seek traditional safe-haven assets such as gold, the US dollar, and commodities that will benefit significantly from Middle East geopolitical crises like oil and natural gas. In the rapidly changing and highly volatile new round of geopolitical conflicts in the Middle East, global investors' anxiety and concern have heightened, further reinforcing their strong demand for traditional safe-haven assets such as the US dollar, gold, and the Swiss franc, which have been classic safe-haven assets for decades. At least in the short term, financial market strategies will clearly lean towards prioritizing safety (that is, the strategy of "buying safe-haven assets first, and then asking questions and doubts later"), and funds may continue to flow rapidly and on a large scale from risky assets such as stocks to major safe-haven and defensive assets such as US Treasuries, gold, safe-haven currencies, and commodities such as oil and natural gas that will benefit significantly from Middle East geopolitical turmoil. In the view of top investment institutions such as Goldman Sachs on Wall Street, the current market is more likely in a high-probability stage of "experiencing a period of shaking/correction, then attempting to break through the 7,000-point mark effectively to achieve a new bull market." Following the recent failure to break through the 7,000-point mark, the "Anthropic storm" that severely hit tech stocks is still fermenting in global stock markets - the panic selling sentiment brought about by "AI disrupting everything" continues to exist, combined with repeated fund flows and geopolitical risks, making it easier for the S&P 500 to first move out of a "painful path." Meanwhile, although the surge in oil prices may disrupt risk appetite, historically, US stocks following a sharp increase in oil prices have often recorded positive returns in the month following the initial sell-off. This means that in the short term, stocks may come under pressure first and then recover, which is more in line with the current market structure than a direct and rapid breakthrough beyond 7,000 points. Furthermore, what will truly determine whether US stocks can maintain a strong bull market after a correction is not the conflict headlines themselves, but whether the impact of the oil price surge is sustained, whether the flow through the Hormuz Strait is long-term interrupted, and whether this leads to persistent inflation/interest rate expectations deterioration. Historical data shows that geopolitical shocks causing a surge in oil prices have not been able to stop a bull market Although the sharp rise in oil prices has made global investors uneasy, historical data shows that the overall market value damage caused by it may be very limited. The Goldman Sachs trading team pointed out that since 2000, in 22 instances where West Texas Intermediate crude oil futures prices rose by 10% or more in a single day, the S&P 500 index often recorded positive investment returns after the initial sell-off. According to Goldman Sachs' statistical data, the S&P 500 index typically dropped an average of 0.24% the day after a sharp rise in West Texas Intermediate crude oil prices due to geopolitical turmoil, but one-month average investment returns were typically around 1.23%, with a median increase of up to 3.57%. Similar patterns have also been observed with Brent crude oil surges. At the same time, Goldman Sachs' senior trader Dom Wilson believes that the increased oil prices will undoubtedly put significant selling pressure on stocks and credit markets in the short term, but he points out that only severe and sustained disruptions in oil supply will significantly harm global economic growth and the stock market's bull market trajectory. Another major Wall Street financial giant, Morgan Stanley, also released a recent research report showing that although the latest tensions in the Middle East have pushed up international oil prices and triggered short-term risk aversion in global markets, these geopolitical impacts often do not lead to sustained declines in US stocks. The determining variable is whether the oil prices show a "historic" and "sustained" surge. Morgan Stanley's Chief Stock Strategist Mike Wilson stated that historical data indicates that oil price surges resulting from geopolitical risks events do not typically lead to sustained market volatility - the S&P 500 index historically tends to rise by around 2%, 6%, and 8% on average one month, six months, and twelve months after a single geopolitical event. Wilson further pointed out that if international oil prices do not experience a significant surge of 75% to 100% year-on-year and maintain high levels, the logic of the US stock market bull market remains very strong. He maintains a year-end target of 7,800 points for the S&P 500 and suggests that for cautious investors, the preferred defensive sector is healthcare. Similar to the views of Goldman Sachs, Morgan Stanley also believes that US stocks may experience a significant downward trajectory due to geopolitical turmoil and negative factors such as tariff storms and the pessimistic market sentiment caused by the "AI disrupts everything" narrative before achieving a stronger bull market trajectory. In Wilson's view, the scenario of a "prolonged bear market" related to the Iran and Middle Eastern geopolitical events over the weekend occurs mainly when oil prices significantly and sustainably rise, threatening the continuity of the business cycle. The historical threshold given by this Morgan Stanley Chief Stock Strategist is when two conditions are met: first, a year-on-year oil price surge of 75% to 100%, and second, the impact occurs in the late stage of the economic growth cycle. Without either one, the geopolitical event is more likely to evolve into a phase of retracement rather than a structural decline. Wilson stated that the current market conditions do not align with the aforementioned "high-risk combination," and he believes that the current environment is in an "early-cycle environment," with profit recovery accelerating, and referred to multiple factors driving synergistic growth that are propelling the rolling cycle recovery of the US stock market. Morgan Stanley has defined 2026 as the "bull market in a broad range of stock markets under rolling recovery," advocating for a resurgence of market risk preference and the resonance of multiple cyclical industries leading the second phase of the bull market. March Headwinds However, according to Goldman Sachs traders, the seasonal performance of global stock markets in March this year is showing a mixed trend of optimism and concern. Looking back to 1928, this month ranks as the fourth worst in terms of the monthly performance of the S&P 500 index, with the first half of the month historically being relatively tumultuous. Especially during the period from March 1st to March 14th, the S&P 500 index typically only rose by an average of 30 basis points, but the performance often improves thereafter, with an average increase of 80 basis points in the two weeks starting from March 15th. At the same time, a senior analyst from Standard Chartered Bank, Steve Brice, stated that the market is relatively well digesting the unprecedented geopolitical shocks from the Middle East tensions. The market decline is currently being kept at around 2%, and the core investment logic remains to buy on dips when there is a clear correction. While acknowledging the rising uncertainties, Brice pointed out that the US stock market may fall by 5% to 10%, presenting a buying opportunity at that time. This analyst emphasized that the market is entering this period of panic against a backdrop of strong fundamentals. He stated, "We are actually in a 'Goldilocks economy' environment. Economic growth is exceptionally robust, and US inflation is indeed falling, albeit at a relatively slow pace. We expect the Fed to reduce interest rates, and corporate earnings remain solid." However, high oil prices may gradually erode this favorable economic environment. Brice stated that investors are currently focused on assessing potential retracement levels under various scenarios, stating, "I think this is the issue that the market is currently trying to figure out - how large a retracement the stock market may experience in baseline and tail risk scenarios, and how to position investments accordingly." Other key points from the latest research report from the Goldman Sachs trading desk include: - So far this year, compared to 2025, in the context of continued severe volatility in the first two months of 2026, individual retail investors who have been buying US stocks at a low point have shown less enthusiasm. - Stock buybacks by companies may have provided some important support for the US stock market. The scale of buyback activities last week was roughly 1.7 times the average level since 2025, and 1.5 times the level seen in 2024. However, this support is expected to diminish. The next silent period for buybacks is expected to start around March 16 and continue until the end of April, during which companies will pause their stock buyback activities. - US companies have announced stock buyback plans worth approximately $317 billion so far this year, marking the second most active start on record, only behind 2023. However, the Goldman Sachs trading desk warns that a new rally is unlikely to be ignited solely by buybacks, and once this support dissipates, market weakness could be amplified infinitely. - On the positive side, tax refunds may provide support for US consumer spending and market sentiment during the spring season. About a quarter of annual tax refunds are paid out in March, with about three-quarters completed by the end of April. - Goldman Sachs' research model shows that systematic funds (also known as "hot money") have largely exited the US stock market, but Commodity Trading Advisors (CTAs) are gradually turning into buyers. However, this dynamic could quickly reverse as market trends change. - Therefore, from a technical, funding, and trading behavior model perspective, the 7,000-point mark now appears more like a psychological barrier + short-term resistance level after a failed breakthrough. As mentioned by the Goldman Sachs trading desk, March itself is the fourth worst month for S&P 500 performance since 1928, with the first half of the month historically being particularly volatile; additionally, while stock buybacks have provided recent support, the period around March 16 will enter a buyback silent period, signaling a temporary weakening of an important source of buying. Combined with the weaker enthusiasm for retail investors to "buy on the dip" this year than in 2025, the market may find a healthier path under the backdrop of geopolitical turmoil in the Middle East by releasing crowded positions and fragile sentiments through a correction before seeking breakout conditions. For example, JPMorgan Chase believes that a 1 to 2 week risk asset pullback is more likely, followed by a significant "buy-on-dip" opportunity. (Note: The translation is based on the provided text; some nuances may not fully capture the original meaning due to linguistic differences)