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Why Goldman Sachs is warning of a stock market crash and recession.

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Welcome market watchers, Phil Rosen here. Dust off your dictionaries because today’s GDP release could reignite the recession debate that has proven to be as semantic as it is economic.

The year started with back-to-back negative GDP readings, but today’s headline should look more bullish, with 2.4% growth expected.

But no matter what the politicians may tell you (the midterms are less than two weeks away), a positive impression doesn’t mean all is well.

Forecasters have penciled in grim data on housing, for example, among other pessimistic figures. Look for the report at 8:30 a.m. ET.

One last thing to help you sound smarter in your water cooler conversations today: Tech revenue has fallen flat so far this week, with names like Alphabet and Microsoft reporting problems in digital advertising.

And speaking of trouble, I explain below why Wall Street’s biggest name expects a long string of bad news on the horizon.

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Brendan McDermid/File Photo/

1. There are a few things on Goldman Sachs’ radar right now, and none of them are particularly bullish. We can first turn to the top executive of the bank.

Speaking at the Future Investment Initiative summit in Saudi Arabia, CEO David Solomon not only warned that a prolonged recession was approaching, but that the Fed would likely raise interest rates above 4.5%.

“There is no doubt that economic conditions will tighten significantly from here,” the executive said, adding that even if policymakers raise rates to 4.5%, they could push them even further. high depending on the reaction of the labor market.

“If they don’t see real changes in behavior, I guess they will go further,” he said. “Generally, when you get into an economic scenario like this, where inflation is priced in, it’s very difficult to get out of it without a real economic downturn.”

Goldman analysts also entered the gloom. The bank’s strategists said the S&P 500 could plunge to 2,888 in the event of a severe recession, which would mark a collapse of around 25%.

“The broader case for US equities does not look very strong and the normal conditions for an equity bottom are not yet clearly visible,” according to a research note published earlier this week.

Although the bank acknowledged that markets had priced in additional Fed rate hikes in November and December, it said investors had yet to price in that aggressive policy could continue until further notice. see you next year.

And why should policy makers not remain aggressive? The latest consumer price index showed inflation hitting a four-decade high of 8.2%, meaning the Fed is struggling to come close to its 2% target. Other commentators have predicted that even 3% in two years is a long term, and that inflation could hover around 6% for another five years.

Remember that the Fed raises interest rates in an effort to cool the economy. Higher rates mean the loan is more expensive.

If borrowing for mortgages or credit cards costs more money, people have less disposable income. When people spend less money, there is less demand and prices can fall back to earth. But the less people spend, the slower the economic growth, which increases the chances of a recession.

What’s your recession hold?

A) We are already in a

B) Recession in the next 6 months

C) Recession in the next 12 to 18 months

D) The United States will avoid a recession

Let me know on Twitter (@philrosenn) or email me (prosen@insider.com).

Television

2. European equities and US futures struggle to orient themselves early Thursday as investors prepare for today’s European Central Bank meeting, which is expected to see rates hike 75 basis points. Here are the latest market movements.

3. On file: Apple, Amazon and MasterCard, all reports.

4. Experts are bullish on small-cap stocks, even though these are the companies that typically struggle when the US economy weakens. Here’s the case for the pre-recession surprise call and what to buy now.

5. America’s most popular mortgage is now costing Americans more than it has in 21 years. The housing market continues to struggle with Fed policy, and with the latest data showing 30-year fixed mortgage rates hitting 7.16%, borrowing hasn’t been this expensive since 2001.

6. Morgan Stanley’s top strategist said investors should expect the bear market to end in the first quarter of 2023. Mike Wilson said the current rally in stocks has room. Notably, he expects the indexes to hold up despite the outlook for weaker spending over the holiday season.

7. The housing market has a big disconnect that cannot last and new home prices have a long way to go. The chief economist at Pantheon Macroeconomics said new home sales are not quite in line with demand for mortgages and the market is far from a sustainable equilibrium. Now, he says, homebuyers are scrambling to sell before prices drop.

8. This 27-year-old real estate investor who owns nine properties in Alabama said the Birmingham market shouldn’t sleep. “It’s a great place where you’re going to see steady growth over time,” the real estate professional said. He shared his top reasons for capitalizing on the money-making opportunity.

9. A fund manager who crushes the market explained his investment strategy and explained how to avoid landmines in international markets. Even as Europe heads into a recession, there is still a way to approach foreign stocks and make gains. Get the full scoop on this top 3% of fund managers.

Meta share price, October 27, 2022

10. Meta stock cratered 20% after the company missed earnings. This week’s tech earnings list saw Facebook’s parent company as well as Alphabet, Microsoft and others stumble. Companies are facing a slowdown in the growth of digital advertising, a closely watched barometer of the health of the wider economy.

Keep up to date with the latest market news throughout the day by checking out The Refresh from Insider, a dynamic brief audio from Insider’s newsroom. Listen now.

Organized by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.

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