Goldman Sachs Group strategists are predicting a more resilient US equity market than many investors fear, asserting that the likelihood of an actual recession is low.
While they acknowledge potential headwinds such as higher valuations, mixed economic growth, and policy uncertainty, the team led by Christian Mueller-Glissmann revealed it that the underlying strength of the private sector and the anticipated easing of monetary policy will prevent a full-blown bear market, as Bloomberg reports.
Historical analysis indicates that severe market corrections, characterized by declines of 20% or more in the S&P 500 Index, have become less frequent since the 1990s over longer business cycles, lower macroeconomic volatility, and the proactive intervention of central banks.
Despite their overall optimistic outlook, the strategists maintain a tactically neutral stance on asset allocation with a mild preference for riskier assets. The prediction comes shortly after world stocks lost over $4 trillion in a week in their largest sell-off in two years.
Goldman Sachs’ note comes at a time in which the total annual interest costs on U.S. Federal debt have surpassed the $1.1 trillion mark in the second quarter of the year, with the government now paying a record $3 billion in interest per day on its debt.
The Federal Reserve started hiking interest rates in 2022 to rein in inflation, and only stopped in late 2023 when the Fed Funds interest rate reached 5.5%. While the market is expecting interest rates to be cut later this month, the country’s debt has kept on rising to now be above $35.3 trillion.
Notably equities have recently lost over $1 trillion in market capitalization over a trading session as large-cap tech stocks endured a massive sell-off that saw the price of Nvidia (NVDA), a company that’s been rallying off of AI growth bets, losing over $360 billion in market capitalization including its after-hours move.
On top of Nvidia’s slowing growth, two manufacturing activity indicators have shown continued sluggish activity in the sector that has been affected by high interest rates. Later this week, the US August jobs report will be released and could lead to further volatility, as last month a hotter-than-expected unemployment reading led to a stock market drawdown.
Notably, according to Investopedia, September is the only calendar month that, over the last 98 years, has recorded negative returns in the stock market, leading to what’s known as the September Effect, which refers to the market’s underperformance during the month.
Featured image via Pixabay.
