U.S. companies will see profits stagnate in 2020 thanks to the spread of the coronavirus in China and beyond, Goldman Sachs said on Thursday, slashing its expectations for average corporate earnings this year.
In a note to clients, the bank cut its baseline earnings per share estimate for S&P 500 companies to $165 from $174 in 2020, implying that profits would remain unchanged from a year ago.
For comparison, data provider Refinitiv's broader survey of analysts from major brokerages currently forecasts a 7.7% rise in earnings this year.
Goldman said the latest forecast reflects a severe decline in Chinese economic activity in the first quarter, lower demand for U.S. exporters, supply chain disruptions and a slowdown in domestic economic activity.
"We assume economic growth slows sharply during the first half of 2020, but rebounds in the second half of 2020 and 2021," Goldman analysts said.
However, they added a more severe pandemic could lead to a prolonged disruption and a U.S. recession.
Financial markets have been rattled by fears that the virus, which has killed more than 2,700 people, mostly in China, and spread to other countries, could undercut the longest U.S. economic expansion on record, now in its 11th year.
Economists expect supply-chain disruptions to hit the struggling manufacturing sector, while pain for the services sector could come via the travel and tourism industry.
Goldman said it expects the benchmark S&P 500 index to trade around 2,900 points in the near-term, 14.4% below the index's record closing high hit on Feb. 19, assuming the U.S. 10-year Treasury yield drops to 1%.
If the yield climbs to 1.5%, Goldman expects S&P 500 to hit 3,400 by the year-end.
The S&P 500 has lost more than 10% since last Wednesday, with the index on course for its worst weekly fall since the financial crisis in November 2008.
Earlier in the day, Bank of America cut its world growth forecast to the lowest level since the peak of the global financial crisis in 2009.