Goldman Sachs Warns Stock Market Rout Will Only Get Worse This Year

The Dow Jones Industrial Average fell 415 points, or 1.4%, to 29,660 shortly after the market opened Friday—eclipsing an 18-month low set in mid-June, as the Fed kicked off a series of the biggest interest rate hikes since 1998.

The S&P 500 and tech-heavy Nasdaq similarly sank 1.7% and 1.8% respectively—each plunging deeper into bear market territory, as oil prices also sank on fears of an economic contraction, with the price of a barrel of West Texas Intermediate tanking 5% to an eight-month low of $80.

“The expected path of interest rates is now higher than we previously assumed,” Goldman Sachs analysts led by David Kostin wrote in a note Thursday night, blaming the stock declines on the Fed’s hawkish pivot this week and forecasting that more aggressive policy will push the S&P down another 3% this year—a dramatic shift from the 16% increase the team projected last month.

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

In the event the economy falls into a recession, Goldman projects the S&P to plunge another 10% to 3,400 points by the end of the year and 17% to 3,150 over the next six months—taking a full year to recover its losses.

Others are similarly bearish: Bank of America’s Savita Subramanian also projected the S&P would fall to 3,600 by the end of the year, saying that more volatility is likely and pointing out that stock declines during recessions with high inflations have amounted to about 11% in the past.