Coronavirus could lead to stock correction: Goldman Sachs

The spread of the coronavirus could portend a stock market dip, according to a Goldman Sachs analysis.

The stock market has continued to reach new highs despite the spread of the deadly virus, but that trend may not continue, warns Goldman Sachs analyst Peter Oppenheimer.

In the near term “we believe the greater risk is that the impact of the coronavirus on earnings may well be underestimated in current stock prices, suggesting that the risks of a correction are high,” he wrote in the analysis released Wednesday.

Oppenheimer said traders were following the playbook for the 2003 SARS outbreak, which came and went without much ado. This time around, however, China’s economy is six times larger than it was when SARS broke out, meaning the drop of its growth projections from 5.9 percent to 5.5 percent will have a more significant global effect.

“The number of ‘missing workdays’ in China will be roughly equivalent to the entire US workforce taking an unplanned break for two months,” he warned.

The bank’s bear market indicator, he added, still predicted a period of lower returns over five years. Stocks may be flying high due in part to low yields in the bond market.

Larry Kudlow, President Trump’s top economic adviser, though, has played down the low bond yields.

“I think you have a lot of mood swings here and I don’t think it reflects the fundamentals,” he told CNBC Friday morning.

The stock markets on Friday were down 240 points in early trading on coronavirus fears.