With the market rally appearing to lose some steam in the second half of June, it may be smart for investors to hedge against a backslide for stocks, according to Goldman Sachs. The firm’s economists now see just a 25% chance of a recession in the next year, but that doesn’t mean investors shouldn’t hedge against downside risk, Goldman’s Cormac Conners said in a note to clients Wednesday. “Our baseline view is that the S & P 500 will rise by 3% to 4500 by year-end 2023 and will reach 4700 (+7%) in 12 months. … However, some portfolio managers expect a recession to begin within the next year, a view that is consistent with most economic forecasters. In that scenario, current consensus expected 2024 EPS of $246 would likely be reduced by 9% to $223 and the index could fall by 23% to 3400,” the note said. Goldman’s year-end target of 4,500 for the S & P 500 is above the average target of 4,227 among major Wall Street firm’s, according to CNBC’s Market Strategist Survey . The S & P 500 is up about 14% year to date, surprising many on Wall Street who predicted a weak first half for stocks. The index briefly broke above 4,400 last week before closing at 4,388.71 on Tuesday. .SPX YTD mountain The S & P 500 has rallied in the first half of the year, bucking the predictions of many experts. Outside of the recession odds, some other risks to the market include the narrowness of the rally and elevated equity valuations relative to history, according to Goldman. To hedge against the S & P 500 falling, Goldman’s options analysts recommended using a put-spread collar on the index. A put option gives the holder the right to sell the underlying asset at a predetermined price. A put-spread collar would consist of buying one put option with a strike price below the level of the S & P 500, and then selling another one even further below the current level, or further “out of the money.” The trader would also sell a call option, which is the opposite of a put, on the S & P 500 where the strike price is above the current level of the index. This strategy would result in little, if any, upfront cost, since the cost of the long put position can be offset by selling the two other options. “The index levels discussed above help to inform their recommendation to buy 6-month protection in a range of -5% to -20% while foregoing upside beyond +8%. This 29-Dec-2023 put spread collar requires zero upfront premium spend and provides downside protection in exchange for agreeing to have equity upside capped,” the note said. One important consideration is that, as a hedge, the trade has less risk for investors who already own the S & P 500. Otherwise, the short call position could create a big loss on the trade if the market continues to rally. — CNBC’s Michael Bloom contributed to this report.