S&P 500 could fall 10% more if recession comes to fruition, Goldman strategist predicts

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The U.S. equity market could experience further losses as rising interest rates, stubbornly high inflation and slower economic growth drive recession fears, Bloomberg reported Wednesday, citing Peter Oppenheimer, Goldman Sachs’ chief global equity strategist, in an interview.

While the S&P 500 (SP500) has already dropped 21% so far in 2022, Oppenheimer said stocks can decline by an additional ~10% if the economy tips into recession, he told Bloomberg. Equities usually fall 30% during cyclical bear markets, he added.

Oppenheimer noted that the top in inflation and interest rates is unlikely to occur before year-end. Earlier, the Federal Reserve hiked its benchmark lending rate by 75 basis points for a third time as the central bank struggles to bring down inflationary pressures. At the same time, the Fed’s dot plot showed that the fed funds rate is expected to peak in 2023 before potential cuts in 2024 and beyond.

That implies the path for higher rates remains extended, as inflation stays at persistently high levels, thus stock valuations could get knocked lower as financial conditions tighten.

Stocks aren’t the only asset class getting dragged down. The same is true for bonds, commodities, cryptocurrencies and others. In turn, Oppenheimer contended that cash and short-dated bonds seem attractive now, he pointed out to Bloomberg. The Wells Fargo Investment Institute, meanwhile, predicted that the Treasury yield curve will stay inverted longer than usual and provided a list of its favored bonds picks for investors.

SA contributor Modern Income Investor outlined its case for the S&P to fall to 2,200.