Goldman Sachs: Rampant U.S. inflation could cause further 27% drop in the S&P 500

The market is coming to terms that it’s not just that the U.S. Fed is going to be aggressive in September after the latest shocking U.S. inflation figure, still running at 40-year highs, but that the central bank will have to hike rates higher, and keep them high for longer, than many seem to have anticipated.

Inflation

Steve Goldstein for MarketWatch:

In a new note to clients, Goldman Sachs chief markets economist Dominic Wilson and global markets strategist Vickie Chang crunched the numbers on what it would mean if Fed has to take a more aggressive path than the market is forecasting.

The results are not great. If the Fed has to hit the economy hard enough to get the unemployment rate up to 5%, the S&P 500 would have to fall 14% to below 3,400, the yield on the 5-year note would have to rise 91 basis points, and the trade-weighted dollar would rise 4%.

In the more severe scenario where the jobless rate would have to hit 6%, the S&P 500 would fall 27%, to below 2,900, the yield on the 5-year Treasury would climb 182 basis points, and the dollar would rise 8%.

That severe scenario implies a tightening of financial conditions comparable to the global financial crisis of 2008, and before that the recessions of the early 1980s.

“If only a severe recession—and a sharper Fed response to deliver it—will tame inflation, then it is likely that the downside to both equities and government bonds could still be substantial, even after the damage that we have already seen,” said the strategists.

MacDailyNews Take: As we wrote earlier this week when the latest U.S. inflation data sent the Dow plummeting 1,200 points: After drifting around aimlessly for far too long on the U.S.S. Transitory, the delusional Fed is laughably too little, too late.

Catching up will be difficult. But, hey, good luck on that soft landing. 🙄

In January, Interactive Brokers founder Thomas Peterffy said, “1% or 2% [in interest rate hikes] doesn’t mean anything. If they really wanted to stop inflation, they would have to raise rates to 4%, 5%, 6%.”

The Fed’s current target interest rate range is 2.25% to 2.50%.

‘Tis best to get a handle on inflation, if you know how, while you still can.MacDailyNews, May 11, 2021

Stop the misguided crusade against domestic energy production and profligate federal spending and inflation will be stopped dead in its tracks. It’s not difficult.MacDailyNews, May 11, 2022

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27 Comments

  1. Installing a mentally incompetent, globalist, establishment, anti-American puppet by deploying mules to stuff unmonitored, unconstitutional drop boxes at 3am has consequences.

    1. We will pay for the 2020 U.S. presidential “election” scam for many, many years to come.

      The 2020 election wasn’t stolen, it was bought by Mark Zuckerberg, one of the world’s wealthiest men, who poured his Facebook money through legal loopholes.

      We currently live in, and suffer under, an oligarchy.

      1. Yes, it seems that U.S. Presidential Elections purchased by Mark Zuckerberg have consequences.

        Some major Carteresque pain is required at first, to teach younger, gullible voters a valuable lesson, but, when Democrats are finally, rightfully cast into the wilderness for a decade or more, we’ll be able to enjoy the sequel to the The Reagan Revolution!

        Can’t wait to Make America Great Again starting this November!

        MAGA!

      2. I stopped following MDN many years ago after it began catering to the far right mindset by incessantly pandering FUD. I came back to see if anything had changed — and, indeed, it has. MDN and forum contributors have since plunged off of the conspiratorial deep end and now subscribe to fantasy theories.

        The 2020 electrion was legitimate. Trump is a deranged egomaniac and repeat criminal offender. And the people who are supporting Trump are the cancerous tumor infecting the whole. You people will believe pretty much anything, no matter how ridiculous or free from fact or reason, that supports your delusions. You far too many of you probably believe in Q, too. What a total load of BS.

  2. Bu, bu, but the “Inflation Reduction Act”, which Biden just signed, hasn’t has a chance to take effect!

    Biden and his Democrat puppeteers are wasting over $700 billion of future U.S. taxpayers’ dollars on stupid green boondoggles, adding even more dollars with no value to an already massive pile of dollars with no value.

    We’ll see the rotten fruits of this genius move in the months ahead.

    You can’t make this stuff up. And every single brain-dead Democrat went along with this lunacy. Everyone of them.

    As is obvious to anyone with an IQ above 80, a vote for any Democrat in November is yet another nail in the U.S. coffin. There are no exceptions.

  3. Disagree with MDN. Raising rates that high will kill demand and stall and destroy the economy. Sure, killing all demand will get rid of inflation but at the cost of destroying all demand and the economy. The problem is the fed is late but also they are hiking rates way too much too fast. They should have hiked it .25% per quarter to ease into it. Now they are just nuking the economy making the cost of money too high. Housing mortgages are too high so that kills housing but sends rents into the sky. Same with killing demand elsewhere.

    1. You don’t even know with whom you’re disagreeing.

      You are disagreeing with Interactive Brokers founder Thomas Peterffy, not MDN.

      You’re aptly named; Biden voter, by the sound of it.

      1. Go F yourself. Never voted for that fascist degenerate Brandon!

        And you apparently couldn’t be bothered to read the MDN take, with which I disagree, here it is Einstein:

        “MacDailyNews Take: As we wrote earlier this week when the latest U.S. inflation data sent the Dow plummeting 1,200 points: After drifting around aimlessly for far too long on the U.S.S. Transitory, the delusional Fed is laughably too little, too late.”

        Increasing the fed rate at huge shocking bump/hikes is not “too little” it certainly is too late though. It should have been earlier, and much more gradual .25% per quarter rate hikes that the market would have been more able to bear without destroying all demand.

        1. You wrote, and I quote: “Disagree with MDN. Raising rates that high…”

          MDN never stated any number regarding how high to raise interest rates.

          MDN merely quoted Interactive Brokers founder Thomas Peterffy’s opinion as to what level of rates should be required to stop inflation.

          Again, you are disagreeing with Interactive Brokers founder Thomas Peterffy, not MDN.

            1. Project much?

              How much higher does MDN want the rates? 25 basis points? 400? 800?

              Answer: You don’t know. MDN never stated any number regarding how high to raise interest rates.

              Again, you are disagreeing with Interactive Brokers founder Thomas Peterffy’s idea of what the rate should be in order to arrest inflation runnign at 40-year highs, not MDN’s, which remains unknown.

    1. This new swing state polling is from Emerson, which generally skews toward Democrats, oftentimes to great effect:

      1. It isn’t 2024, dimwits. Who cares what these “polls” say about a matchup in 2024 that will probably never happen? Trump loses against any reasonable candidate because he is a frigging egomaniacal nutcase! Can’t you even realize that he stole and retains hundreds of classified documents?! That is addition to 1000s of other federal records which belong to the government, not Trump! He is a fraud. He is a compulsive liar. And he is a traitor to this country. That make you accomplices.

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