Dow Drops 500 Points: Bear Market Returns, Goldman Warns Recession Could Hit Stocks Harder

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Shares closed at their lowest level in more than a year on Friday as a growing number of investment analysts released grim forecasts for the markets and the economy this year, with some saying major indices will plunge deeper into negative territory as the Federal Reserve moves deeper into negative territory. Reserve a more aggressive policy to fight inflation.

Key facts

The Dow Jones Industrial Average fell 486 points, or 1.6%, to 29,590 on Friday, overshadowing its 18-month low in mid-June, as the Fed launched a series of the largest rate hikes since 1998.

The S&P 500 and the tech-heavy Nasdaq similarly fell 1.7% and 1.8% respectively – each diving deeper into bear market territory, as oil prices also fell on fears of an economic contraction, with the price of a barrel West Texas Intermediate fueling 5% to an eight-month low of $78.

“The projected interest rate path is now higher than we previously assumed,” Goldman Sachs analysts led by David Kostin wrote in a note Thursday night, blaming the Fed’s aggressive linchpin’s price declines this week and forecasting a more aggressive move. The S&P fell another 3% this year – a dramatic shift from the 16% rise the team forecast last month.

“The outlook is unusually murky,” the team continued, saying the paths of inflation, economic growth, interest rates, earnings and valuations “are all moving more than usual” and a majority of the investment bank’s investors now believe a hard landing is “inevitable”.

In the event that the economy enters a recession, Goldman expects the S&P to fall another 10% to 3,400 by the end of the year and from 17% to 3,150 in the next six months, taking a full year to recover. to make up for his losses.

Others are bearish as well: Bank of America’s Savita Subramanian also predicted the S&P would fall to 3,600 by the end of the year, saying more volatility is likely and noting that stock declines during high-inflation recessions were about 11% in the Past.

What to watch out for

Goldman economists predict the Fed will raise interest rates another 75 basis points in November, 50 basis points in December and 25 basis points in February. If inflation continues to exceed expectations, those projections could mount – certainly creating more problems for the markets.

key background

Recent market sell-offs intensified after the Labor Department reported that inflation rose more than expected in August, fueling concerns that Fed officials may need to act more aggressively to suppress inflation. The S&P is down 23% this year and the Nasdaq has 31% craters. In a note to clients, Keith Lerner, chief market strategist at Truist Advisory Services, said the Fed will likely keep interest rates high for longer to offset inflation challenges that have persisted for more than a year — “even if it requires more economic pain.” as officials have been warning more and more since last month.

Surprising fact

According to Bank of America, fund managers are showing signs of extreme bearishness: They are collecting cash at the highest level since 2001 and limiting exposure to equities (at a record low) as global economic growth expectations near historic lows in the face of tightening efforts by the government. central bank.

Read further

Fed raises interest rates by another 75 basis points – pushes borrowing costs to highest level since great recession (TUSEN)

Stocks struggle as markets brace for another ‘unusually large’ Fed rate hike (TUSEN)

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