A further 27% drop in the S&P 500 could come if inflation hawks are right, Goldman Sachs team warns

A further 27% drop in the S&P 500 could come if inflation hawks are right, Goldman Sachs team warns

Not exactly TGIF this Friday.

What the seller is slowly realizing is not only that the Fed will be aggressive in September after the latest shocking inflation figure, but that the central bank will have to keep interest rates higher and longer. The British Pound GBPUSD,
-0.39%,
indicative of financial market conditions in some ways, Friday fell to its lowest level since 1985 against the US dollar, dropping below $1.14.

In a new message to customers, Goldman Sachs chief economist Dominic Wilson and global market strategist Vickie Chang summed up the numbers on what it would mean for the Fed to take a more aggressive path than the market predicts.

The results are not great. If the Fed has to hit the economy hard enough to get the unemployment rate to 5%, the S&P 500 SPX,
-0.72%
should fall 14% below 3,400, the yield on the 5-year bond TMUBMUSD05Y,
3,637%
should rise 91 basis points and the trade-weighted dollar should gain 4%.

In the more severe scenario where the unemployment rate should reach 6%, the S&P 500 would fall 27% to below 2,900, the 5-year Treasury yield would rise 182 basis points and the dollar would rise 8%.

(The latest dot chart from the Fed itself shows the unemployment rate rising to 4.1% in 2024, and Goldman’s house forecast is that the unemployment rate will hit 4% by the end of 2024.)

The new Goldman projections aren’t great, but they’re within the range of previous shots.

That severe scenario implies a tightening of financial conditions comparable to the global financial crisis of 2008 and before that the recessions of the early 1980s.

“If only a severe recession — and a sharper Fed response to deliver it — will tame inflation, chances are the downward trend for both stocks and government bonds is still significant, even after the damage we’ve already done. seen,” he said. the strategists.

By the way, Goldman went into the new year predicting that the S&P 500 would close at 5,100 in 2022.

The market

US stock futures ES00,
-0.43%

NQ00,
-0.39%
point to a bleak start. The dollar DXY,
-0.09%
saw renewed vigor. Crude Oil Futures CL.1,
+0.35%
traded around $85.

the buzz

FedEx FDX,
-21.40%
stocks fell 20% in premarket trading after warning about the fiscal first quarter and withdrawing guidance for the rest of the year. Rivals UPS UPS,
-4.48%
and Deutsche Post DPW,
-6.58%
fell too.

General Electric GE,
-3.66%
CFO Carolina Happe said at an investor conference that it sees continued pressure in the supply chain that will impact free cash flow in the third quarter.

uber uber,
-3.62%
said it is responding to a cybersecurity incident and has contacted police.

NCR NCR,
-20.30%
said it would split into two companies, rather than sell itself.

Germany has seized the assets of three Russian-owned oil refineries, which account for 12% of the country’s oil refining capacity.

The only data available is the University of Michigan’s consumer confidence index, which is expected to be released at 10 a.m., with the report’s inflation expectations closely monitored.

The White House has released a flurry of reports on digital assets as it signaled warnings about cryptocurrency financial stability.

The best of the internet

The Fed has made its latest purchase of mortgage-backed securities.

The lowest-earning American households are poorer than 14 European countries, including Slovenia.

Apple AAPL,
-1.10%
evolves into a different kind of business.

The graph

There’s good news and bad news with this Bank of America compiled chart, which shows credit card usage in both the US and UK. The bad news, of course, is that Americans and Brits feel the need to take on debt to support household spending as inflation rises. However, the good news is that they are still spending money.

Top tickers

Here were the most active tickers from 6 a.m. Eastern.

ticker

Security name

TSLA,
-0.13%

Tesla

GME,
+0.10%

GameStop

AMC,
-9.11%

AMC entertainment

BBB,
-8.76%

Bed Bath & More

AAPL,
-1.10%

Apple

HKD,
-19.82%

AMTD Digital

NIO,
-6.32%

Nioz

MONKEY,
-9.26%

Preferably AMC Entertainment

DWAC,
-2.38%

Digital World Acquisition Company

AMZN,
-2.18%

Amazon.com

Random reads

Another “what’s a catch” debate in the NFL after an important interception was destroyed.

Men pay six figures for the horrific operation to get bigger.

The annual Ig Nobel was awarded for research into turning knobs.

Need to Know starts early and updates until the opening bell, but sign up here to get it in your email box once. The email version will be sent around 7.30am Easter.

Leave a Reply

Your email address will not be published.