Goldman Sachs says Trump tariff pause will not prevent market decline
Goldman Sachs sees elevated equity drawdown risk despite tariff reprieve
President Donald Trump’s abrupt reversal of most newly imposed tariffs may have sparked a historic market rally on Wednesday, but it’s unlikely to prevent a deeper correction in equities, Goldman Sachs warned in a note on Thursday.
The investment bank said its equity drawdown risk model shows a “strong signal” that further market losses may be ahead, even after recent volatility and a 2,700-point surge in the Dow, reports Business Insider.
Goldman’s internal model placed the probability of a significant market decline at over 35% on both a three-month and 12-month horizon—thresholds historically associated with lower forward returns and steeper selloffs.
“Levels above 35% give a strong signal of downside risk to equities,” the bank’s analysts wrote. “These probabilities remain high, especially under our economists’ bearish macro baseline.”
Economic Weakness and Policy Volatility Fuel Investor Unease
Several fundamental and sentiment-based indicators continue to weigh heavily on market outlooks. Leading growth metrics—particularly in manufacturing—have deteriorated. The Institute for Supply Management reported contracting activity in new orders and production through March, suggesting cooling demand.
Volatility also remains elevated. Though the CBOE Volatility Index (VIX) has eased slightly from post-tariff highs, it remains significantly above levels seen earlier this year. Meanwhile, the U.S. Economic Policy Uncertainty Index registered 689 on Wednesday—down from a monthly peak of 992, but still historically high, underscoring persistent anxiety about economic direction.
Despite Trump’s 90-day pause on most tariffs, Goldman analysts remain skeptical that market conditions will stabilize soon. “Until we see a clear peak in drawdown probability, downside risks will remain elevated,” the note said.
Recently we wrote, that Goldman Sachs has reduced its recession probability from 65% to 45%, revising its outlook following President Donald Trump’s announcement of a 90-day pause on new tariffs.
