Goldman Sachs says the markets are valued as if a recession is unavoidable

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

A recession is not unavoidable, but clients always ask what to expect from equities in the event of a recession, Kostin wrote in a new note to clients on Thursday. Our economists believe that the US economy will go through a recession in the next two years, and that the yield curve is pricing a similar likelihood of a contraction. The U.S. equity market is showing that investors are pricing elevated odds of a downturn compared to the strength of recent economic data. Kostin said that S&P 500 dividends will fall by nearly 5% in 2023, which is what is currently predicted by the dividend futures markets. During recession periods, companies tend to cut dividends and stock buybacks to conserve capital.

The commentary comes after a brutal day for the markets, triggered by a host of fresh concerns.

U.S. stocks fell after a series of disappointing quarterly results from some major retailers, Target, Walmart, and TJX Companies, pummeled already-battered market sentiment as all three companies struck worrying notes on the state of the U.S. consumer and runaway inflation.

Investors were further digested by comments from Federal Reserve officials who stated their aims of reining in inflation.

By the closing bell, the S&P 500 had slid by 4% in its worst day since June 2020, closing at 3,923. The Nasdaq Composite dropped by 4.7% to 11,418. The Dow Jones Industrial Average fell by more than 1,100 points, or 3.6%, while the Dow Jones Industrial Average fell by more than 1,100 points.

Even the shares of often safe-haven stocks such as Coca-Cola and Apple lost 5.6% and 7%.

The Dow lost more than 275 points as of 8: 25 AM ET on Thursday, showing that the losses would likely continue. The appetite of the bulls has been damaged by more profit warnings from Kohl's and Bath Body Works this morning.

Tech heavyweight Cisco's disappointing quarter after the close yesterday isn't helping bruised market sentiment.

He noted that the S&P 500 has fallen from peak to trough over 12 recessions since World War II, and fell from peak to trough by a median of 24%. A decline of this magnitude from the S&P 500 peak of nearly 4,800 in January would bring the index to about 3,650, or 11% below current levels. The S&P 500 would be reduced by 30% to 3360, or 18% lower than today, according to the average decline of 30%.

Peter Boockvar, Bleakley Advisory Group chief investment officer Peter Boockvar, said in a note to clients that we now have P E multiplies compressing, profit margins rolling over and the growing possibility that sales will slow down in response to supply issues and the growing possibility of an economic slowdown. A perfect storm. Sozzi follows BrianSozzi on Twitter and LinkedIn.