The recent historic rally from March lows may be limited as investors weigh the potential risk of a viral second wave and the swiftly approaching 2020 presidential election, according to Goldman Sachs.
"We expect the potential risk of a viral 'second wave' and the fast-approaching US presidential election will limit a significant increase in equity exposures in the near term," wrote David Kostin, Goldman's head of US equity strategy, in a Friday note.
This will likely hold back any further room that the equity rally has to go, according to Kostin. Since March lows reached amid the coronavirus pandemic market rout, stocks have rebounded handsomely as investors flocked back to risk assets.
Now, the S&P 500 is only about 9% from its all-time high reached in February, and there is "some additional room for equity allocations to rise and cash allocations to decline until they reach pre-crisis levels," Kostin wrote.
Still, this presents only a "modest upside risk," according to the note, as both a second wave of coronavirus cases in the US and the 2020 election are major uncertainties going forward. Another wave of COVID-19 cases could bring a further round of economy-devastating lockdowns, and the presidential election could see a change in the country's highest office.
"Periods of elevated policy uncertainty have generally coincided with lower-than-average equity allocations during the past 30 years," said Kostin.
Goldman Sachs said it thinks that the S&P 500 will trade in a range of 2,750 to 3,200 for the rest of 2020, signaling about 3% upside at most from current levels. "Our year-end target remains 3000," Kostin wrote.
This article originally appeared on Business Insider.
