Despite a Large Hole in the Market, the Stock Market Has Recovered. These Are Goldman Sachs' Recommendations for Investors

After the S&P 500 regained positive territory for the year, rebounding 18.1% from its April 8 low, investors are now left wondering what to do next. In a fresh report titled “What to do after the rally,” Peter Oppenheimer, chief global equity strategist at Goldman Sachs, breaks down where the market stands and what investors should consider moving forward.

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The first critical question, according to Oppenheimer, is identifying the type of bear market the market has just experienced—or is still experiencing. He outlines three main kinds of bear markets: structural, cyclical, and event-driven. Structural bear markets are typically the most severe and prolonged, often following asset bubbles and excessive private-sector debt. Historical examples include Japan’s late-1980s collapse and the global financial crisis of 2008.

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Cyclical bear markets, by contrast, tend to occur more frequently and are usually tied to upcoming recessions. The third type, event-driven bear markets, are triggered by unexpected external shocks that temporarily disrupt economic activity. Oppenheimer believes the recent market downturn fits into this third category.

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While there were some indications of an economic slowdown in the U.S., the real catalyst for the market's sharp drop came on April 2, when President Donald Trump announced new tariffs. These trade tensions spooked investors, raising fears of a potential recession. Oppenheimer explains that the concern wasn’t just about the tariffs themselves but about how they could dampen business confidence and investment. The threat of a downturn—even if not realized—was enough to cause a market selloff, driven by fears of falling earnings and a push for lower valuations.

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Goldman Sachs had viewed the early rebound as a classic bear-market rally—temporary and vulnerable to a reversal, especially if economic indicators weakened.

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However, the situation shifted dramatically after a better-than-expected development: the U.S. and China agreed to a 90-day pause on tariff escalations, and a trade agreement was reached between the U.S. and the U.K. These events eased investor fears and signaled that the market's slump was more of a short-term disruption than the start of a deeper economic problem.

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With these resolutions, Goldman Sachs adjusted its outlook. The firm lowered its estimate of the likelihood of a U.S. recession within the next 12 months from 45% to 35%. It also raised its year-end target for the S&P 500 from 5,900 to 6,100.

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Still, Oppenheimer warns that investors should remain cautious. Risks haven’t disappeared. Tariff levels remain elevated compared to early April, with U.S. goods imports still facing an average 13% tariff rate. Meanwhile, economic growth is likely to slow somewhat, and the Federal Reserve may become more reluctant to cut interest rates.

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Another factor to consider is that event-driven bear markets—though fast to recover—typically show limited short-term upside after the initial rebound. Oppenheimer notes that if this pattern holds, investors shouldn’t expect markets to soar much higher in the near future. Adding to the caution, the recent surge has driven valuations in several market sectors to higher-than-average levels, making them less attractive in terms of price-to-earnings ratios.

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As a result, Goldman’s asset allocation team is taking a neutral stance on equities and maintains an overweight position in cash. According to Oppenheimer, the key strategy now is diversification.

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One suggested move is to broaden investments beyond the U.S. As the dollar weakens, foreign investors may pull back from American assets, making international exposure more appealing. Oppenheimer highlights that although the U.S. still boasts strong returns on equity, that advantage appears to have peaked. Markets in Germany, Italy, and Hong Kong have recently performed well and present new opportunities.

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Diversification doesn’t only mean looking internationally—it also involves reevaluating sectors and investing styles. Oppenheimer points out that while U.S. tech stocks struggled during the latest selloff, this moment has revealed an ongoing shift toward a wider mix of sectors, regions, and investment approaches. One underappreciated area he mentions is European banks, which he sees as a compelling value play.

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Beyond diversification, Oppenheimer emphasizes focusing on two main types of companies: “quality growth” firms that consistently reinvest and deliver long-term earnings growth, and “value” companies that generate shareholder returns through buybacks and rising dividends.

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Even though tech stocks were hit hard during the recent downturn, Oppenheimer says first-quarter earnings proved that big tech remains resilient, especially as spending on artificial intelligence continues. He believes investors will reward companies with strong pricing power—those capable of protecting profit margins even as input costs rise. And despite the better outlook for economic growth, elevated tariff levels are expected to persist into 2025, which will likely weigh on corporate margins.

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In short, while the recent rally may have provided relief, Oppenheimer encourages a balanced, thoughtful approach moving forward—one that emphasizes global diversification, sector flexibility, and companies with durable, long-term business models.

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