Finance

Goldman Sachs warns coronavirus could wipe out corporate earnings growth for 2020

Goldman Sachs, a leading investment bank, is warning investors that the coronavirus may bring corporate earnings growth to a standstill in 2020, echoing other predictions that the virus could put a big dent in the U.S. economy ahead of the presidential election.

"U.S. companies will generate no earnings growth in 2020," David Kostin, Goldman's chief strategist for U.S. equities, wrote in a memo to clients Thursday.

Kostin informed clients that Goldman has updated its earnings model for the stock market to "incorporate the likelihood that the virus becomes widespread."

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

Corporate earnings had been forecasted to grow by as much as 7 percent this year, but that prospect now appears unlikely as the spread of the virus has significantly slowed economic activity in China, the world's second-largest economy.

Goldman is recommending that clients shift money to stocks that are better suited to weather an economic downturn.

"A more severe pandemic could lead to a more prolonged disruption and a U.S. recession," Kostin wrote.

He also said that corporate earnings for the S&P 500 could drop as much as 13 percent in 2020 if a recession unfolds.

Goldman on Thursday cut its initial forecast of $174 per corporate share to a revised projection of $165 per share.

The Dow Jones Industrial Average plunged more than 800 points, or 3.1 percent, on Thursday morning before paring some of those losses, while the S&P 500 slid 3 percent.

The Dow is down more than 3,000 points from its high of 29,568, while the S&P 500 is down more than 300 points from its high of 3,393.

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