Goldman Sachs forecasts worse case recession as traders dump stocks & crypto

Stocks crawled through the end zone on Friday, closing below the sixth week in a row, the worst losing stretch in the previous decade for shareholders.

Goldman Sachs believes things could get worse, as painful as that sounds. Much, much worse.

The investment bank's equity team created dual full-year predictions for the S&P 500 in a message to clients.


The benchmark is expected to conclude 2022 at 4,300, a near-7 percent premium to Friday's closing. This believes that corporations will be able to eke out profits as the economy slows.

The worst-case scenario is far direr. It entails a full-fledged recession smashing the US economy, with stocks sliding another 10% to 3,600 by the end of 2022.

Former Goldman CEO and current senior chairman Lloyd Blankfein appears to be betting on the latter possibility. He told a Face the Nation interviewer on Sunday that there is a "very, very significant possibility" that the US economy will enter a recession.

The pessimistic calculations are adding to the risk-off market's volatility.

Global stocks and US futures were in the red at 3:30 a.m. ET Monday, with Nasdaq futures down more than 1%. (after climbing 3.8 percent on Friday). In the meantime, the safe-haven dollar continued to rise, adding to its spectacular gains against rival currencies.

The notion that economic growth will slow in the world's most advanced economies is baked into Goldman's pessimistic outlook.

Goldman's senior economist Jan Hatzius reduced U.S. GDP growth in 2022 and 2023 in a separate research released over the weekend.

Hatzius's team now predicts that the US economy will increase 2.4 percent this year (up from 2.6 percent previously) and 1.6 percent next year (vs. 2.2. percent for full-year 2023).

COVID and Russia's invasion of Ukraine are pushing up costs, clogging supply chains, and sapping consumers' buying power this quarter, according to Hatzius. Hatzius' team's report, it should be noted, did not mention the R-word.

The week ahead is jam-packed with economic data and earnings. Wall Street will be watching tomorrow's retail report to determine if consumers are actually cutting back on their spending.