Goldman Sachs Warns Recession Still a Major Risk Despite Market Rebound
S&P 500 futures have surged roughly 18% since bottoming out on April 7, putting the index on the cusp of re-entering bull market territory. Traders seem to believe the market overreacted last month to fears over the Trump administration’s trade war. Contributing to the rebound was Trump’s 90-day delay on implementing his proposed “reciprocal” tariffs.
But not everyone is optimistic.
Goldman Sachs is urging caution. Alec Phillips, the bank’s chief political economist, warns that President Trump’s recent comments on a U.K. trade deal imply many nations could face significantly higher tariffs than before his re-election.
In a podcast titled “On the Precipice of Another Dip?”, Goldman’s chief economist Jan Hatzius and global equity strategist Peter Oppenheimer sounded a cautious tone.
Hatzius reiterated a 45% chance of a U.S. recession within the next year. He pointed out that while hard economic data like payrolls remain strong, soft data such as sentiment surveys have weakened—likely due to a lag in how economic activity is measured, especially given that some trade was accelerated to beat tariffs. Still, Hatzius says there’s “a very significant risk of a recession.”
He also noted the Federal Reserve may not act swiftly enough. With inflation data clouded by tariffs, the Fed might wait until the labor market weakens before easing policy, potentially leading to up to 200 basis points of rate cuts during a downturn.
Oppenheimer highlighted that the market rally was fueled by optimism around Trump’s tariff delay, decent corporate earnings, and retail investors buying the dip. But he cautioned that Q1 earnings don’t yet reflect the full impact of trade disruptions.
“If hard data—especially labor market indicators—start to deteriorate, markets may reassess the recession risk and pull back,” he said.
He also warned that U.S. equities are not cheap, trading at a price-to-earnings ratio of 20. In a typical recession, a 10% drop in earnings coupled with a lower valuation multiple could drag the S&P 500 down to around 4,600.
Further pressure may come from foreign investors trimming exposure to U.S. stocks, as the dominance of American tech wanes and valuation gaps with global markets begin to close. Currently, U.S. equities make up a record 70% of global market capitalization—a share that Goldman believes is unsustainable.
The silver lining? Oppenheimer doesn’t foresee a structural bear market—like those triggered by asset bubbles or major financial imbalances. Still, he warns that stocks face asymmetric downside risk in the near term.
