With the stock market falling for the last six weeks in a row amid growing concerns about an economic slowdown and the Federal Reserve raising interest rates to combat inflation, an increasing number of Wall Street experts are warning of now “uncomfortably high” recession risks, with rising odds of a downturn within the next two years.
Markets moved lower again on Monday, struggling to rebound from a brutal sell-off in recent months that has caused tech stocks to nosedive and pushed the S&P 500 to the edge of bear market territory.
Goldman Sachs became the latest major firm to slash its market outlook on Monday, citing higher interest rates and “slower economic growth than we previously assumed,” though stocks could still bounce back later in the year.
Goldman chief economist David Kostin lowered his year-end price target for the S&P 500 to 4,300 from 4,700—implying roughly 7% upside from the index’s current level of around 4,000 but a 9% decline from 2021, while adding that if a recession occurs, the index could fall another 10% to 3,600.
While some forecasts insist a recession isn’t in the cards, a growing number of economists have warned about a looming downturn: “Risks are uncomfortably high and rising,” says Moody’s Analytics chief economist Mark Zandi in a recent note.
As the economy struggles to deal with “painfully high inflation,” which has “forced the Federal Reserve to go on high alert,” Zandi puts the odds of a recession at 33% in the next 12 months and nearly 50% within the next 24 months.
Former Goldman CEO Lloyd Blankfein told CBS on Sunday that the possibility of a recession is a “very, very high risk factor” and there is only a “narrow path” to safety, predicting that some inflationary pressures will remain “sticky.”
The recent market selloff has certainly “raised recession fears,” Zandi says, with declines led by a “stunning selloff in previously soaring technology stocks. “Historically, when inflation is high and the Federal Reserve is working hard to quell it, recessions happen more often than not.”
“Despite the economic contraction in Q1, most economists and economic models do not currently forecast a looming recession,” notes Bespoke Investment Group. Even amid the increasingly gloomy outlooks after the U.S. economy contracted 1.4% in the first quarter of 2022, economists still expect second quarter GDP to rebound by up to 3%.