Goldman Sachs worries the stock drawdown is about to get worse, and is bracing for wider credit spreads and a recession. “We think there is a high chance that we continue to push toward full recession pricing, which would imply weaker equities, wider credit spreads, a deeper Fed cutting cycle and higher longer-dated equity volatility,” the firm’s Dominic Wilson wrote on Tuesday. Goldman’s economists will likely move to a recession as their base case scenario if the tariffs are implemented as President Donald Trump has promised, Wilson said. If that is the case, then equities have further to fall, as history shows that recessions are typically correlated with even larger pullbacks, he said. “Despite the large shift already in cyclical pricing, our ‘growth benchmarking’ exercises suggest that the market is still not priced for an average recession,” Wilson said. “Historical comparisons show that recessions are usually associated with larger equity drawdowns than we have seen and much larger declines in the Fed funds rate than are priced.” “Among common recession gauges, only the VIX is at levels associated with past recession peaks: longer-dated equity volatility, credit spreads and the yield curve are not,” he continued. The bearish outlook comes after Trump’s tariffs triggered a four-day stock rout that saw the S & P 500 briefly touch bear market territory at the start of this week. On Wednesday morning, all three major indexes turned positive even as China and the European Union responded to Trump’s latest levies. Stocks have been on a four-day rout in the wake of the trade policy. Other market observers are getting worried. On Wednesday, JPMorgan Chase CEO Jamie Dimon said a recession is the “likely outcome” from the tariff turmoil. BlackRock CEO Larry Fink said Monday that many CEOs he is speaking with believe the economy is already in a recession . Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!
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