Stocks are in for a wild ride as they don't reflect recession risk
Deutsche Bank’s Binky Chadha, meanwhile, expects the S&P 500 Index to slump to 3,250 points — 19 per cent below current levels — in the third quarter as a recession begins, before rebounding in the fourth quarter.
“Equity risk premia appear low considering elevated recession risk and uncertainty on the growth/inflation mix,” the Goldman strategists said, with stock drawdown risk higher amid weak growth and volatility, coupled with high valuations. Goldman’s analysis shows equities tend to rebound once inflation has peaked if a recession is avoided. In the event of a contraction, however, they decline another 10 per cent on average in the six to nine months after the peak.
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