Goldman Sachs is cutting its market forecast for the year, but that baseline assumes no recession.
But if there is a recession, it would push the S&P down to 3,600, which would be an 11% drop from current levels.
“Our economists assign a 35% probability of recession in the next two years,” strategist David Kostin wrote in a note. “However, if by year-end the economy is poised to enter a recession in 2023, a combination of reduced EPS estimates and a wider yield gap would drive a lower index level.”
If the economy avoids recession, but real rates (TIP) keep rising, that would take the S&P down to 3,800.
“If the Fed is forced to hike by more than our economists expect and real rates rise to 1%, similar to the peak reached during the last cycle in 2018, our macro model suggests that higher rates will more than offset the lower yield gap,” Kostin said. “In this scenario, the forward P/E would equal 16x, the lowest level since 2020.”
Goldman did boost its 2022 EPS forecast to up 8% from up 5% after Q1 results.
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