‘A recession is not inevitable’ but stocks are being priced as if it were: Goldman Sachs

‘A recession is not inevitable’ but stocks are being priced as if it were: Goldman Sachs

The markets are being valued as if a recession is all but certain despite robust economic data, according to Goldman Sachs Chief U.S. Equity Strategist David Kostin.

"A recession is not inevitable, but clients constantly ask what to expect from equities in the event of a recession," Kostin wrote in a new note to clients on Thursday. "Our economists estimate a 35% probability that the U.S. economy will enter a recession during the next two years and believe the yield curve is pricing a similar likelihood of a contraction. Rotations within the U.S. equity market indicate that investors are pricing elevated odds of a downturn compared with the strength of recent economic data."

Kostin added that dividend futures markets currently imply that S&P 500 dividends will fall by nearly 5% in 2023. Companies tend to cut dividend payouts and stock buybacks during recessionary periods to conserve capital.