Goldman Sachs warns that the stock market may not have bottomed yet

The recent recovery in the US stock market is likely to be short-lived, according to the strategists at Goldman Sachs.

Stocks bounced back in July with a strong – and rare – rebound thanks to some weaker economic data that bolstered the dovish Fed outlook and strong quarterly earnings reports from major companies that mostly proved resilient in the face of inflation. The Nasdaq Composite had their best month since late 2020.

But the comfortable recovery is unlikely to last long as investors continue to assess sharp inflation, slowing economic growth and the potential for a slowdown in US employment, according to Goldman analysts led by Cecilia Mariotti.

“Without clear signs of a positive shift in overall momentum, a temporary re-risking could actually increase the risk of another downside in the market rather than signaling the end of a bear market,” they wrote in an analyst note on Thursday.

Wall Street’s confidence in stock markets hits 5-year low

The Goldman Sachs logo appears on the trading floor of the New York Stock Exchange in New York City on November 17, 2021. (Reuters/Andrew Kelly/file photo/Reuters Photo)

The analysts’ note comes just days after the Commerce Department announced that gross domestic product, the broadest measure of goods and services produced across the economy, contracted 0.9% year-on-year in the three-month period from April to June. economic output It actually fell during the first three months of the year, with GDP dropping 1.6%.

Recessions are technically defined by two consecutive quarters of negative economic growth and are characterized by high unemployment, low or negative GDP growth, low incomes and slow retail sales, according to the National Bureau of Economic Research (NBER), which tracks downturns.

Is the United States entering a recession?

With successive declines in growth, the economy meets Technical parameters of slack, which requires “a significant reduction in economic activity that is spread throughout the economy and lasts more than a few months.” However, the NBER – the semi-official verdict – may not confirm this immediately because it usually waits up to a year to be contacted.

The National Bureau of Economic Research also emphasized that it relies more on data than GDP in determining whether there was a recession, such as unemployment and consumer spending, which remained strong in the first six months of the year. It also takes into account the depth of any downturn in economic activity.

Federal Reserve

A man walks past the US Federal Reserve building in Washington, DC, on April 29, 2020. (Xinhua/Liu Jie via Getty Images/Getty Images)

There is a growing consensus on Wall Street that the Federal Reserve will cause a recession as it battles inflation with a series of aggressive rate hikes. Policy makers approved a second consecutive rate hike of 75 basis points last week and indicated that a large-volume rate hike is on the table in September, depending on upcoming economic data.

Federal Reserve Chairman Jerome Powell told reporters that tackling inflation remains the central bank’s number one priority, even if it means risking deflation – although he stressed that he doesn’t think the US is currently in a recession.

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“We believe it is necessary for growth to slow,” he told reporters last week. “We actually think we need a period of growth below the potential in order to create some slack so that the supply side can catch up.”

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