The S&P 500's biggest single-day loss since September 2022 barely left a mark, as the index finished last week down less than 0.1% after an atrocious 3% meltdown on August 5 .
During the sell-off, strategists at Goldman Sachs recommended buying the dip in US stocks , albeit carefully, as they reiterated their year-end S&P 500 price target of 5,600. Those brave enough to heed that advice as their peers ran for the exits have been rewarded so far.
"Following the sell-off, we noted that 5% S&P 500 declines have historically been profitable buying opportunities," wrote David Kostin, the chief US equity strategist at Goldman Sachs, in his weekly note, which doubled as a victory lap of sorts.
But while markets have mellowed out, Kostin warned that stocks aren't completely in the clear. More volatility is almost certainly ahead in an election year where economic data is softening .
"Historical precedent suggests implied volatility will stay relatively elevated ahead of Election Day," Kostin wrote.
"The fundamental driver of the sell-off that began last week was a batch of weaker-than-expected labor market data that increased investor fears of a looming recession," Kostin wrote.
Renewed doubts about the US economic expansion weighed on cyclical stocks, which had one of their worst performances relative to their defensive counterparts since the financial crisis.
Goldman Sachs
But such growth scares are often a false alarm. Economically sensitive stocks have lagged defensives by at least 5 percentage points in a single week 12 times since 2000, according to Goldman Sachs. That means investors freak out about a slowdown once every two years, on average, though there have only been three recessions in the US since the turn of the century.
And although Goldman Sachs economists just increased their recession probability in the next year from 15% to 25%, Kostin is still confident that this wave of worrying will be an overreaction.
"Despite the weak jobs report, our economists believe continued economic expansion is far more likely than recession," Kostin wrote. He added: "They emphasize that layoffs generally remain low and that much of the recent rise in the unemployment rate was driven by an increase in labor supply rather than a sudden drop in labor demand."
The glass-half-full camp notched a pair of victories last week as jobless claims were minimal and economic activity, as measured by the Institute of Supply Management's services report, rose in July from the prior month . Kostin noted those encouraging data points and will continue to eye jobless claims, retail sales, and earnings reports from companies like Walmart.
"If economic fears abate, as we expect, then the recent sell-off represents an opportunity for alpha generation," Kostin wrote.
45 beaten-down stocks set to bounce back
Barring an unexpected growth setback, Kostin wrote that stock-pickers will be well-positioned to succeed as the gap between market leaders and laggards widens.
"If economic fears continue to fade and the market becomes more micro-driven in coming months, then the recent sell-off represents an attractive opportunity to buy stocks with healthy fundamentals at valuation discounts," Kostin wrote.
For most of the year, stocks have primarily risen or fallen based on company-specific catalysts like earnings instead of macroeconomic events. Goldman Sachs found that those micro factors explained 86% of stock returns in the first half of 2024, versus the long-term average of 57%.
That dynamic flipped during the early August sell-off, but Kostin and company believe it will reverse again as recession talks go back on the back burner. Fewer worries about the near-term economic outlook mean stocks will no longer trade in lockstep — a win for active investors.
Volatility and the correlation between stocks tends to decline after so-called growth scares.
Goldman Sachs
As stock-picking becomes stylish again, Kostin spotlighted 45 stocks in the Russell 1000 index that have gotten crushed during this selloff, despite receiving higher earnings revisions than their sector peers since the start of the third quarter.
Below are those companies, sorted by the largest month-to-date loss through Monday's close, along with each one's ticker, market capitalization, sector, return from July 31 to August 12, earnings revision for 2025 this quarter, and expected earnings growth for 2025.
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