Goldman Sachs Warns: Are U.S. Stocks on the Brink of a 30% Correction?

Inflation, tariffs, and stretched valuations could trigger a market storm. Here's how to protect your portfolio.

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22 hours ago
Summary
  • Market drawdown risks hit 30%—hedge now or risk steep losses, says Goldman Sachs
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Goldman Sachs is flashing warning lights for the U.S. stock market as 2025 kicks off, pointing to a 30% chance of major corrections. Think stretched valuations, stubborn inflation, and a political wildcard in President-elect Donald Trump, who's already eyeing fresh tariffs. Historically, when drawdown risks climb past 35%, markets take a beating—and while we're not quite there yet, the S&P 500 (SPY, Financial) is looking wobbly. After a roaring 23% gain in 2024, the index is up just 0.6% so far this year, but that momentum could evaporate if policy and inflation pressures continue to mount.

The real issue? Stocks are “priced for perfection,” according to Goldman. Translation: there's no room for mistakes. Growth? Baked in. Tech? Dominating everything. Five U.S. giants now make up a quarter of the market. But with inflation pivoting upward and trade policy uncertainty hitting new highs, cracks are forming. And while the macro environment still supports equities, Goldman warns a combo of earnings misses, geopolitical shocks, or inflation surprises could send markets into a tailspin. Investors banking on smooth sailing might want to rethink their portfolios.

So, how do you protect yourself? Goldman suggests hedging for the storm. Short-dated S&P 500 put spreads could guard against near-term corrections triggered by earnings misses or political turmoil. If you're more worried about a deep recession, longer-dated puts might be your ticket. And for those keeping an eye on interest rates and trade risks, hybrid strategies like “S&P 500 down/EURUSD down hybrids” are a smart move. Bottom line: the stakes are high, and complacency isn't an option. Stay nimble, and don't get caught flat-footed.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure