Goldman Sachs warns of risk of further weakness in S&P 500

The combination of economic and political uncertainty might drag the S&P 500 up to 10% lower, strategists at Goldman Sachs said.

"Although investors appear complacent in the wake of Brexit, a maturing economic cycle with elevated valuations, decelerating buybacks, and growing political uncertainty provide the basis for potential market weakness in the second half," Goldman Sachs´s chief econmist David Kostin reportedly said in a research note sent to clients.

Indeed, he and his team expected political uncertainty to increase as the US presidential election drew closer.

Nonetheless, Kostin´s forecast also called for above-trend economic growth Stateside, a cautious US central bank and a recovery in earnings to boost the S&P 500 to 2,100 by year-end, allowing an extension of the flat market which had now reigned for two years.

The strategists' projections called for the S&P 500 to trade at 1,950, 2,100 and 2,150 points over the next three, six and twelve months.

Kostin recommended clients move into companies sporting high dividend yields and elevated domestic exposure.

Historically, health care, telecom services, and consumer discretionary offered the best opportunities, whereas the riskier bets included energy, materials and industrials.