- Goldman Sachs has said investors are being complacent about recession risks and markets remain vulnerable.
- Stocks have rallied in recent weeks as investors have bet the Fed will pause its rate hikes as growth slows.
- But Goldman said markets could run into trouble if inflation continues to surge and growth slows rapidly.
Investors are being complacent about the risks of a recession and markets remain vulnerable to inflation and weak growth, according to analysts at Goldman Sachs.
Stocks have rallied sharply in recent weeks as investors have bet that slowing economic growth will mean central banks hold off on rapid interest-rate increases.
The S&P 500 jumped more than 9% in July, with technology stocks — which tumbled in the first half of the year — faring particularly well.
Yet Goldman’s analysts, led by Cecilia Mariotti, urged caution in a note on Monday.
“Looking at the re-pricing of cyclical assets in the US and EU, we think the market might have been too complacent too soon in fading recession risks on expectations of a more accommodative monetary policy stance,” they wrote.
Many investors are betting that the US Federal Reserve is likely to stop hiking rates in 2023 and even start cutting them as growth slows sharply, in an effort to avoid a damaging recession.
Those bets have been fueled by weak economic data. They’ve caused bond yields to drop and have boosted equities, which have fallen sharply this year under the pressure of rate rises.
However, Goldman is concerned that investors’ hopes could be misplaced.
Mariotti and colleagues said markets remain “vulnerable.” They said they could run into trouble if inflation continues to surge, forcing central banks to keep hiking interest rates, or if growth slows more dramatically than currently expected.
Goldman Sachs expects the S&P 500 to stand at around 4,000 in three months’ time — around 3% below Monday’s closing level of 4,119.
However, it expects the index to pick up to 4,300 in six months’ time and 4,500 in a years’ time.