US equities may need to pull back further before mounting a durable advance, Goldman Sachs Group Inc.'s trading desk warned, citing fragile sentiment and choppy flows. The S&P 500's latest attempt to clear the 7,000 level fizzled, leaving stocks vulnerable despite a broadly supportive macro backdrop. Goldman's trading desk team including Gail Hafif and Brian Garrett wrote that "the only way up is down from here."

Market volatility intensified as Middle East tensions triggered a spike in oil prices, with Brent futures settling about 6.7% higher near $78 a barrel. The biggest gain since June came as crude surged following near halt to traffic through the Strait of Hormuz and disruption at a big refinery in Saudi Arabia. While the spike rattled investors, historical data shows the damage may be limited, with S&P 500 returns often positive beyond immediate selloffs.

Seasonality also looks mixed in March, according to Goldman traders. This month ranks as the fourth-worst for the S&P 500 going back to 1928, with the first half historically choppy. The stretch from March 1 to March 14 averages just a 30 basis-point gain, though performance tends to improve after March 15. Meanwhile, Goldman's Dom Wilson sees higher oil weighing on equities and credit in the near term, but argues that only a severe, sustained supply disruption would meaningfully damage global growth.