Investors are dumping stocks, the stock market continues to suffer a slowdown, and Goldman Sachs has calculated a worst-case recession forecast. The global economy is already facing multiple risks, including rising commodity prices, the disruption of the COVID rail system, and the lowering of Wells Fargo’s year-end target for the S&P 500. This article will discuss the impact of these factors and how they will affect the economy.
Goldman Sachs calculates a worst-case recession forecast
The United States economy is far more immune to the price spike in oil, but a recent study by Goldman Sachs downgraded its growth forecast for the entire next five years. While soaring oil prices are causing some to curtail spending, they are also driving up the cost of commodities. A recent study by Goldman Sachs showed that consumers’ confidence has plummeted since Russia invaded Ukraine.
A worst-case scenario for the United States would see stocks fall by 10%, or 3,600 by 2022. Former Goldman CEO and senior chairman Lloyd Blankfein said that a recession is a real possibility. The bearish analysis is adding volatility to an already risk-averse market. But what exactly does a full-blown recession look like? And why are people so worried about it now?
COVID disruption will add 1.5 million workers to the economy
The report comes as Russia’s invasion of Ukraine and COVID have combined to cause the deepest economic downturn since the Great Depression. It’s possible that the unemployment rate will remain elevated for years to come, as consumers’ spending power is drained by soaring prices. COVID-19 also resulted in unprecedented decreases in GDP and employment. However, some economists worry about the overheating of the economy, even though inflation remains well within the Federal Reserve’s target range.
This pessimistic outlook is already causing market volatility, as Nasdaq futures fell by more than 1% and the safe-haven dollar was climbing again. Goldman Sachs senior chairman and former CEO Lloyd Blankfein said there is a high chance of a recession. The pessimistic calculations are adding to the risk-off market.
Wells Fargo lowers its 2022 year-end target for the S&P 500
After a strong start to the year, Wall Street firms are lowering their S&P 500 price targets. While the more hawkish Fed will remain the strongest headwind, geopolitical risks will soon fade. Michael Wilson of Morgan Stanley warns that tighter monetary policy will drag markets lower. His firm now sees the S&P 500 ending 2022 at about 4,400.
However, the stock market may be in for a short-lived rally through the end of the year. A top Wells Fargo analyst believes that a rally this year will be a glimmer of hope for investors. Although he predicts that stocks will rally through the end of the year, he warns that the market is more susceptible to higher inflation and a weakened economy.