Goldman Sachs economists estimate a 35% probability that the U.S. economy will enter a recession during the next two years and believe the yield curve is pricing a similar likelihood of a contraction, strategist David Kostin tells investors in a research note. Rotations within the U.S. equity market indicate that investors are pricing elevated odds of a downturn compared with the strength of recent economic data, writes Kostin. He says that while a recession is not inevitable, Goldman clients “constantly ask what to expect from equities in the event of a recession.” Across 12 recessions since World War II, the S&P 500 Index has contracted from peak to trough by a median of 24%, according to Kostin. A decline of this magnitude from the S&P 500 peak of nearly 4,800 in January 2022 would bring the S&P 500 to approximately 3,650, or 11% below current levels, he points out.
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