Sustained oil supply disruption could drag S&P 500 earnings this year: Goldman
BNN Bloomberg
An extended period of higher oil prices could be the biggest threat to earnings of U.S. equities this year, Goldman Sachs said, warning that every one percentage point drop in U.S. economic growth could reduce S&P 500 earnings by as much as four per cent.
Oil prices on Monday surged to more than $119 a barrel, hitting levels not seen since mid-2022, as a widening U.S.-Israeli war with Iran cut supplies.
Goldman warned of “a more meaningful downside risk” to U.S. equities from a prolonged period of severe oil disruption, even though the direct impact of modestly higher oil prices on S&P 500 earnings should be relatively muted.
“A sustained increase in (oil) uncertainty would also threaten equity valuations, corporate confidence, and the nascent rebound in industrial activity,” Goldman said in a note on Friday.
Historically, the impact of geopolitical risk shocks on equity prices has typically been short-lived, the brokerage said, adding recent S&P 500 price action has resembled the equity market’s pattern during past shocks.
The S&P 500 index .SPX is down more than 2% since the start of the conflict. According to Goldman, during seven spikes in the geopolitical risk index since 1950, the S&P 500 fell by an average of 4% during the first week.
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