Doomsday forecasts for the U.S. economy have flooded in over the past year amid the Federal Reserve’s battle against inflation. Predictions of an impending “severe recession” from the likes of Elon Musk, or even “another variant of a Great Depression” from New York University economist Nouriel Roubini, have led most Americans to believe a downturn is inevitable this year.
A number of U.S. bank CEOs, including JPMorgan Chase’s Jamie Dimon and Bank of America’s Brian Moynihan, confirmed their fears about the economy’s future last week as well, arguing in earnings reports that a “mild recession” is likely on the way. But Goldman Sachs is still forecasting a “soft landing” in the U.S.—whereby inflation is tamed without sparking a recession. Even with the Fed’s aggressive interest rate hikes raising borrowing costs for consumers and businesses, Goldman believes the economy is strong enough to continue growing.
But the investment bank’s chief U.S. equity strategist, David Kostin, said in a note to clients on Monday that a “soft landing” doesn’t mean investors should flock back to the stock market. Kostin argues the S&P 500 will end 2023 at 4,000, having made no progress at all from the start of the year. And he warned that the path to get there, even without a recession, will take the blue-chip index down another 10% to 3,600 in the first quarter.
After a “lackluster” fourth-quarter earnings season, the “trend of weakening corporate profitability” will continue next year due to high interest rates and falling profit margins, according to Kostin. And if a recession does come, stocks have a long way to fall.