Brokerage houses and investment backs usually post optimistic forecasts about the stock market. Why not project a future that helps drum up business? In an unusual decision that shows how badly the stock market and economy have been bruised, Goldman Sachs, the world’s premier investment bank, says the stock market should drop more between now and the end of the year. It demonstrates that even the best market experts believe that a terrible economy and inflation have undermined the global economy to a rare extent.
The firm’s forecast for the S&P 500 at year-end shows a change in what had been a signal of optimism. Its new expectation is that the index will hit 3,600 by December 31, 2022. That is below the current figure of 3,700. Formerly, Goldman Sachs forecast a year-end level of 4,300.
Goldman Sachs analysts are quoted by CNN: “The forward paths of inflation, economic growth, interest rates, earnings and valuations are all in flux more than usual with a wider distribution of potential outcomes.”
The “wider distribution” cannot be seen as so wide. Goldman Sachs’s number implies that inflation’s path continues toward a consumer price index of over 8% monthly, year over year. Brought on by the Federal Reserve’s efforts to curb inflation, interest rates have hockey-sticked at a historically high pace. These rates have put homeownership out of reach for some Americans, as mortgage rates surge by the week.
Supply chain trouble continues to push up prices for most items Americans buy regularly. The sole exception recently has been gasoline and oil.
Larry Summers, a leading economist and former Treasury secretary, says unemployment needs to rise to 5.5% or higher as part of the effort to stamp out inflation. The U.S. unemployment rate was under 4% before the pandemic-driven recession and returned to that level afterward.
The Goldman Sachs forecast could hardly be more dreary.
Originally posted at 24/7 Wall St.
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