There’s less than a 20% chance of a bear market after the election as an upbeat economy helps stocks push higher, Goldman says

Investors may be nervous about election-related volatility, but the market is in good shape to avoid a steep drop into bear market territory after the vote, Goldman Sachs said.

The analysts said they see just an 18% chance that stocks fall more than 20%, which would signal the start of a bear market. They point to the continuation of a healthy economy that’s helped push stocks higher this year.

“Despite recent weaker macro data (in part due to strikes and hurricanes last month), the friendly US macro backdrop should limit the risk of a bear market,” the analysts said in a Monday note.

They said that even if bond yields rise considerably after the election, stocks should continue to do fine, though a more rapid increase in bond yields or real yields could pose a more outsize risk.

“Equities should be able to digest higher bond yields as long as they are driven by better growth. That said, rising bond yields might eventually become a speed limit for equities if real yields start to increase (vs. real GDP growth expectations) or if increases in bond yields are too rapid,” the analysts said.

Analysts and economists think higher bond yields — which are a headwind for stocks — are likely if Trump wins. His proposals for sweeping tariffs and mass deportations would be inflationary and could make it harder for the Federal Reserve to continue easing monetary policy.

A Harris win with a split Congress, on the other hand, would likely result in lower bond yields, the analysts say.

The central bank delivered a jumbo rate cut in September, and is widely expected to cut by 25 basis points at the conclusion of its meeting on Thursday.

The path of the easing cycle after that is less certain, as some strategists have warned the Fed could hit pause on rate cuts in December or early next year. though some still see another jumbo rate cut in the cards as the economy slows and the labor market weakens.

The Goldman analysts said stocks have been able to digest rising bond yields so far. Their call for stocks to avoid a bear market comes as the S&P 500 has surged over 21% this year, with the bull rally turning two years old last month.

Vice President Kamala Harris and former President Donald Trump remain virtually tied in final polls. Investors are bracing for election-related market volatility if the result of the vote is unclear for several days.