U.S. investment bank Goldman Sachs (GS) is warning that the American stock market could fall 20% or more in coming months as the risk of an economic recession rises.
While the benchmark S&P 500 has gained 18% from its low on April 7 and is close to turning back into a bull market, Goldman Sachs says risks remain.
The bank’s chief political economist Alec Phillips says despite pending trade deals such as the one struck with the United Kingdom (U.K.), import tariffs look here to stay.
Goldman’s chief economist Jan Hatzius also remains cautious about the stock market, saying in a podcast that we appear to be “on the precipice of another dip.”
A decline of 20% or more from recent highs is the technical definition of a bear market.
Hatzius reiterated that he sees a 45% chance of a U.S. recession in the next 12 months.
He notes that the full impact of the Trump administration’s tariffs isn’t likely to be known for another 30 to 60 days as economic data is a lagging indicator.
There is “a very significant risk of a recession,” said Hatzius in the podcast. He adds that a recession may prompt the U.S. Federal Reserve to deliver 200-basis points of rate cuts.
Any decline in the U.S. market from here could see foreign investors further reduce their exposure to Wall Street, pushing prices down even more in coming months.
The bottom line, stresses Goldman Sachs, is that risks to stocks remain elevated in the short term due to persistent uncertainty.
The stock of Goldman Sachs has declined 2% this year to trade at $565.70 U.S. per share.
