The capital markets are on absorption alert for the interest rate hike in the US next week, when the central bank there is expected to raise it by at least 0.75%, if not by 1% to a rate of 3.5%. This, when two more interest rate hikes remain after this year.
It was reported on the Marketwatch website today that the investment bank Goldman Sachs, one of the largest in the US by market capitalization (traded on the Dow Jones index), published two scenarios for the rest of the year on the New York Stock Exchange, and they are completely contrary to the bank’s forecast from the beginning of 2022.
As you may recall, a week ago Morgan Stanley Bank, also one of the 5 largest banks in the US, warned that the S&P 500 index may drop by the end of the year from its current level of between 15%-25%. The bank stated its fear of a recession and a retreat in the profits of the traded companies, when the bank’s forecasts The companies’ profits are more pessimistic than most other banks and investment houses that cover Wall Street.
And at Goldman Sachs, the bank’s chief capital market economist, Dominic Wilson, and market strategist Vickie Chang, gave their negative outlook for the S&P 500 index in case the Fed continues its sharp rate hikes, as is expected to be the case.
If the Fed raises interest rates so that the unemployment rate climbs to 5%, then the S&P 500 will cut 14% below 3,400 points, the two experts at the bank said (the index now stands at 3,900 points, but it is expected to drop at the open today ). Also, the two noted that in this scenario bond yields will continue to climb and the dollar is expected to strengthen by another 4% compared to the main currencies.
Even worse, according to the two experts, if the unemployment rate climbs to 6%, the S&P 500 could fall 27% below 2,900, bond yields would jump even more, and the dollar could jump 8% .
Earlier today, the investment bank Citigroup, also one of the largest in the US by market value, noted that the world’s stocks have written off $23 trillion this year, making the American currency a safe haven: “The only place to hide is in the American dollar,” the bank noted. Bloomberg The dollar is expected to end its strongest year since 2004 and has jumped 11% this year against 10 other leading currencies.
The World Bank warned earlier that a global recession is upon us and claims that the three largest economies in the world – the US, China and the Eurozone – are experiencing a sharp slowdown so that “even a weak hit to the global economy next year could put them into recession.” The IMF is also pessimistic – they warn that some of the countries expected to enter a recession next year.
And what was Goldman Sachs’ forecast at the beginning of 2022: the bank expected the S&P 500 index to climb to 5,100 points by the end of the year. But inflation and the sharp interest rate hikes intended to slow it down completely changed the forecasts at the bank, which now does not rule out entering a recession.