Goldman Sachs, which previously estimated that there was a 35% chance of a recession within two years, is reiterating that a recession in the U.S. is not inevitable despite what stocks say.
"While our growth forecast has long been below consensus, we believe fears of declining economic activity this year will prove overblown unless new negative shocks materialize," Goldman Sachs Chief Economist Jan Hatzius wrote in a note to clients.
Hatzius forecasts second quarter U.S. GDP growth of 2.8%, an improvement from a 1.5% decline in the first quarter, followed by GDP averaging 1.6% growth over the ensuing four quarters and no recession.
"Despite the market narrative of declining business activity and sharply lower management confidence," Hatzius added, "the activity measures of the surveys available for April and May indicate a deceleration rather than a collapse."
Hatzius' analysis arrives after a comeback week for the markets fueled by upbeat earnings reports from retailers Macy's and Nordstrom, which helped alleviate concerns (for now) a recession was taking form.
The S&P 500 index ended a seven-week losing streak and posted its best week since Nov. 2020, rising by more than 6.5% and erasing its losses for the month of May to date.
Meanwhile, the Dow Jones Industrial Average and Nasdaq Composite tacked on 4.2% and 5.2%, respectively on the week.
Market sentiment was also supported by the defense of the U.S. economy by CEOs at the World Economic Forum. While most top execs noted that business had slowed recently amid inflation and supply chain challenges, they collectively discounted a recession later this year.
"I don't want to see us talk ourselves into a recession, first of all, and I think people are a little too pessimistic," Cisco CEO Chuck Robbins told Yahoo Finance Live (video above). "If you go back over the last several years, the challenges we have dealt with as a global society, we should have confidence we are going to deal with whatever comes our way. Whatever happens will likely be short-lived."
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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