According to a recent report by Goldman Sachs, the S&P 500 has fallen around 9% from its January peak, reflecting the combined impact of rising oil prices, higher interest rates and ongoing instability linked to tensions involving Iran, News.Az reports, citing CNBC.
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Valuations fall despite stronger earnings outlook
The decline in equities has been driven largely by a contraction in valuation multiples rather than weakening earnings expectations.
Goldman Sachs noted that the index’s price-to-earnings ratio has dropped from 21 times earnings to around 19 times in recent weeks. At the same time, analysts have raised 2026 earnings-per-share forecasts by approximately 3%, highlighting a disconnect between market pricing and corporate performance expectations.
This divergence underscores a broader trend in which macroeconomic risks are outweighing otherwise stable business fundamentals.
Sentiment weakens but not yet supportive
From a technical standpoint, investor sentiment has deteriorated significantly. Goldman’s US Equity Sentiment Indicator has fallen to -0.9, its lowest level since August 2025.
Historically, readings below -1 have been associated with stronger forward returns, suggesting that current positioning may be approaching levels that could support a rebound.
However, analysts caution that sentiment alone is unlikely to drive a sustained recovery without clearer improvements in underlying conditions, particularly if geopolitical tensions continue to escalate.
Earnings season seen as key test
Despite the market volatility, Goldman Sachs maintains a relatively constructive baseline for corporate America, forecasting earnings growth of around 12% for the S&P 500 in 2026.
The upcoming earnings season is expected to serve as a critical test of that outlook. Investors will closely examine whether companies can preserve profit margins amid higher energy costs and disruptions to global trade flows.
Management guidance is likely to be a key factor in shaping market direction, particularly in assessing how firms are adapting to prolonged uncertainty.
Policy outlook complicates recovery
Attention is also turning to the response of the Federal Reserve, as policymakers navigate a challenging mix of slowing growth and persistent inflation pressures.
Elevated oil prices and sticky inflation have reduced expectations for near-term interest rate cuts, reinforcing a “higher-for-longer” rate environment.
In this context, investors are increasingly favouring companies with strong balance sheets and high-quality earnings profiles that are better positioned to withstand tighter financial conditions.
As earnings reports begin to emerge, analysts say the trajectory of US equities will depend on whether corporate performance can offset macroeconomic headwinds — or whether continued geopolitical risks will push markets toward further downside.
