Goldman Sachs team warns S&P 500 could fall another 27% if inflation holds true

The stock fell in the last hour, and hours later, FedEx issued the worst warning relative to expectations a Deutsche Bank analyst has seen in 20 years.

Not exactly TGIF this Friday.

The sell-off is slowly realizing that the Fed is going to be aggressive after the latest shocking inflation data in September, but the central bank will have to keep rates higher and longer. British Pound GBPUSD,
A proxy in some respects for financial market conditions, the US dollar plunged below $1.14 on Friday, falling to its lowest level since 1985.

In a new note to clients, Goldman Sachs chief market economist Dominic Wilson and global market strategist Vicki Chang crunch the numbers on what it would mean if the Fed were to take a more aggressive path than market forecasts.

The results are not great. If the Fed is to hit the economy high enough to get the unemployment rate up to 5%, the S&P 500 SPX
The yield on the 5-year note BX:TMUBMUSD05Y will see a decline of 14% to below 3,400.
would increase by 91 basis points, and the business-weighted dollar would rise 4%.

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

(The Fed’s final dot plot itself shows the unemployment rate rising to 4.1% in 2024, and the House of Goldman estimates the unemployment rate to reach 4% by the end of 2024.)

Goldman’s new estimates aren’t great, but they are in line with previous declines.

That dire scenario implies a tightening of financial conditions compared to the global financial crisis of 2008 and the recession of the early 1980s before that.

“If only a severe recession – and a swift Fed response to deliver it – would reduce inflation, it is likely that the downside for both equities and government bonds could still be substantial, even. That damage that we have already seen,” he said. Strategist.

By the way, starting the new year, Goldman predicted that the S&P 500 would close 2022 at 5,100.

Market

US Stock Futures ES00

NQ00
Pointing to a slow start. Dollar DXY
I saw new power. Crude oil futures CL
Was trading around $85.

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fedex fdx
Shares fell 20% in premarket trading after issuing a warning in its fiscal first quarter and withdrawing guidance for the rest of the year. Rivals UPS UPS
and Deutsche Post XE:DPW
also fell.

General Electric GE
CFO Carolina Happe said at an investor conference that it is seeing continued supply-chain pressures that will impact free cash flow in the third quarter.

Uber Uber
said it is responding to a cyber security incident and has contacted law enforcement.

NCR NCR
said it would split into two companies instead of selling itself.

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

The only data on tap is the University of Michigan’s Consumer Sentiment Index, at 10 a.m. Eastern, with the reported inflation expectations set to be closely watched.

The White House drew a flurry of reports on digital assets as it warned of financial stagnation from cryptocurrencies.

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

The lowest earning ranks of American households are poorer than those of 14 European countries, including Slovenia.

Apple AAPL
Grow as a different kind of company.

Chart

There’s good news and bad news, with this chart compiled by Bank of America. Credit-card use is on the rise in both the US and the UK, certainly the bad news is that Americans and Britons feel the need to go into debt. Support household spending when inflation rises. However, the good news is that they are still being spent.

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